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A business tax return is a report where you present your business income, tax payments, and income tax deductions even if there is no tax payable. If you own a business, it will fall into one of three different business structures. Knowing what type of business you run is important as it will dictate what sort of business tax return you will have to file: a T1 return or T2 return.

You must fill out a T1 return if you are a:

  • Partnership
  • Sole Proprietorship or 
  • Self Employed individual 

You must file a T2 return if you are a:

Now that we’ve identified the type of business tax return you must fill based on the type of business you run, let’s discuss it further.

Sole Proprietorship, Partnerships, and Self Employed Individuals

What Is A T1 Tax Return?

A T1 return is a business income tax return form in which you report business-related income and expenses with the Canada Revenue Agency (CRA). According to the CRA, this means that any money made for a profit must be reported. This includes any money made from a profession, a hobby, manufacturing, and any activity that involves the buying or selling of goods and services.

If you’d like to know more about your company’s working capital, click here

However, do not confuse any employment income you receive from an employer as part of your business income. Any wages earned from an employer must be filed as a separate T1 return forum.

How To File Your T1 Tax Return?

When filing your business tax return this year, you’ll need the T2125, Statement of Business or Professional Activities form. It’s a well-designed form that is broken down into approximately five sections with a few other subcategories. Here we will briefly go over the five main ones. 

1. Identification: You are required to provide basic information like your name, business name, your 15-digit account number, and other relevant information to your business.

2. Total income: This section will include your business income, including any sales tax you have collected. 

 3.  Net income: Here you will determine your net income and claim any deductions that apply to you. To calculate the amount you can deduct is dependent on whether any of your expenses are considered as a current year expense or capital expense. Click here to see what is considered as a capital expense and current expense. 

4.  Taxable income: Here you will fill out the information necessary to determine your taxable income.

5. Refund or balance owing: Lastly, you’ll have the opportunity to claim any refundable credits that apply to you and figure out how much money you owe or will get back. 

If your business is a partnership, there is a section on the form dedicated to that. You can fill out information regarding all your partners and claims you may have. You can use the guide called the “T4002, Self-employed Business, Professional, Commission, Farming, and Fishing Income” provided on the Government of Canada website to help walk you through the form. 

Where To Find The T1 Tax Forms?

You can find the forms on the Government of Canada’s website by simply searching up the term “T2125, Statement of Business or Professional Activities” on their website. The very first link will provide you with the form.

What Are The Deadlines For The T1 Tax Return?

Generally, you must submit your T1 tax return on the 30th of April each year unless it’s on a weekend which then may be pushed to the following Monday. For self-employed individuals including their spouses or common law-partner, the deadline to file your tax return is June 15. However, if you have a balance owing for the previous year, you have to pay it on or before April 30. If you miss the deadlines you are liable to pay interest on the amount.

You can have a look here to see what kind of receipts you should keep for your taxes. 

Corporation Business Tax Return

What Is A T2 Tax Return? 

A T2 return is a tax return for a corporation in which the corporation must report their business-related income and expenses with the CRA. According to the CRA, there are two types of corporations:

Resident corporations – This includes all corporations except for a select few like registered charities. 

Non-Resident corporations – This includes any corporations that have carried out business in Canada. 

However, being the owner of a corporation, you must also fill out a T1 personal income tax return. The reason being, a corporation is considered a separate legal entity or its own person. As such, you the owner, have limited liability, meaning any business losses cannot be deducted from your own income which is why you must submit a T1 return.  You can learn more about being an incorporated business by clicking here. 

How To File Your T2 Tax Return?

When filing your T2 returns, you must use the General Index of Financial Information (GIFI). The GIFI is a list of codes that standardize the terms on your financial statement.  This is an incredibly important step when filling it out for the first time as the codes you use will carry forth in the future which can lead to mistakes and confusion if you use the wrong code. For example, the item “Cash” is assigned code 1001, if you use a different code such as 8810, it will be read as “Office expenses” instead. When filing, corporations may use either a form or the internet to submit their T2 returns. However, it is mandatory for companies with annual gross revenue over 1 million to submit their report electronically. 

Where To Find The T2 Tax Forms ?

There are two ways you could file your T2 returns: 

  1. Electronically using CRA-certified software or
  2. Through the T2 Corporation Income Tax Return form

If your corporation is a Canadian-controlled private corporation (CCPC), or a corporation that is exempt from tax under section 149, you may be eligible to file the T2 Short return. A T2 Short return is a shorter version of the T2 Corporation Income Tax Return form. If you’d like more information please visit the “Corporation income tax return” page on the government of  Canada website.

What Are The Deadlines For The T2 Tax Return?

File your return within six months of the end of each tax year. The tax year of a corporation is its fiscal period. For example: if your corporation’s tax year ends on July 27, your filing deadline will be January 27. If your deadline falls on a weekend or statutory holiday, your deadline will move to the following business day.

What If I Miss The Date?

If you file your return late you will be penalized a 5% interest on the unpaid tax. For every month after that, an additional 1% will be fined for up to 12 months.

Final Thoughts

When running a business, understanding your business tax return is part of being successful. With the right information, you can avoid any late interest fees and save on the amount owing. Proper management of your tax returns can reduce the amount of time spent on it each year, making tax season a little less of a burden.  It is also an important aspect of your business you should familiarize yourself with as it can lead to a better understanding of your business, how to maximize your deductions and overall how to reduce your income tax.

Priyanka Correia, BComm avatar on Loans Canada
Priyanka Correia, BComm

Priyanka Correia is a Marketing Coordinator and personal finance expert at Loans Canada. Priyanka completed her Bachelor's degree in Marketing at Concordia University and has published work that has been mentioned in various news media. She is passionate about money management and educating Canadian consumers about how to take control of their financial lives.

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