Businesses that are incorporated in Canada must pay corporate taxes. Each incorporated entity must complete a corporate income tax return on an annual basis, whether or not a company makes a profit, breaks even, or goes into a loss. Companies must report income to Canada Revenue Agency (CRA), claiming an income deduction and a tax credit to the agency.
Federal and Provincial Tax Obligations
Canadian tax rates are federally controlled. Legally, CRA needs to oversee corporate filings that it manages or the government tax authority dedicated to these corporate filings. Corporations in Canada must pay corporate taxes that are federally controlled and independently controlled at the provincial or territorial level.
Filing Deadlines and Penalties
A corporation must complete its tax return filing no later than six months after the end of its fiscal year. For instance, if a corporation ends its fiscal year on December 31, the deadline to file the tax return would be in the following year on June 30. Taxes that the corporation owes must be paid, in most cases, two or three months after the end of the fiscal year. Penalties are a combination of fines and interest that are added by the CRA.
Deductions and Credits for Corporations
A variety of deductions and tax credits help businesses curb taxable income. Deductions for businesses include operating expenses, salaries and wages, interest, depreciation capital cost allowance, and travel and business expenses. In addition, corporations become eligible for federal and provincial tax credits, such as ones for R&D, apprenticeship, and clean technology investments.
A substantial tax advantage available for small Canadian corporations includes the Small Business Deduction. The incentive makes a tax rate reduction applicable for the first some dollars of active business income earned by a Canadian-controlled private corporation . To obtain such a deduction, the corporation has to meet ownership and operation tests as outlined by the CRA.
Electronic Filing and Payment Options
The CRA suggests using certified tax software and CRA’s online services to file tax returns electronically. Electronic filing streamlines the tax return process and minimizes errors while speeding up return processing. Taxpayers can pay their taxes online through the CRA’s “My Business Account” or through participating financial institutions.Many small business owners filing their own taxes still engage the services of large and medium corporations’s professional accountants or tax advisors to ensure current compliance and accuracy for their tax filings.