Corporate Income Tax (T2) Services in Canada

The Canadian T2 return — much more than a once-a-year form

Every Canadian corporation — whether a Canadian-controlled private corporation (CCPC), a professional corporation, a holding company, an investment company, or a non-resident corporation carrying on business in Canada — must file a T2 Corporation Income Tax Return each year. The T2 is due six months after the corporation's fiscal year-end, and corporate tax owing is due either two or three months after year-end depending on the corporation's status and whether it claims the small business deduction.

What makes the T2 different from the T1 personal return is that the T2 is the formal record of a year of corporate decisions: salary versus dividend remuneration, capital purchases and depreciation, related-party transactions, eligible and non-eligible dividend designations, RDTOH (refundable dividend tax on hand) and GRIP (general rate income pool) balance tracking, and small business deduction grind for passive income. A T2 prepared without attention to those moving parts can quietly cost a Canadian business owner tens of thousands of dollars per year in unnecessary tax.

Who we prepare T2 returns for

• Canadian-controlled private corporations from $50,000 to $20,000,000 in annual revenue
• Professional corporations for physicians, dentists, lawyers, engineers, accountants, and other licensed professions in provinces that permit PCs
• Holding companies receiving inter-corporate dividends or holding investment portfolios
• Family-owned operating corporations with succession or estate-freeze planning needs
• Real estate corporations holding rental properties or operating as flippers/developers
• Trucking and contractor corporations with owner-operator structures
• Consulting and IT services corporations at risk of Personal Services Business (PSB) reclassification
• Startup corporations claiming the Scientific Research and Experimental Development (SR&ED) tax credit
• Non-resident corporations carrying on business in Canada and required to file a Canadian T2

What we deliver in a T2 engagement

• Full preparation of the T2 corporation income tax return and all applicable schedules (Schedule 1 reconciliation of book to tax income, Schedule 3 dividends received and paid, Schedule 8 capital cost allowance, Schedule 50 shareholder information, and many more depending on the corporation)
• General Index of Financial Information (GIFI) coding of your financial statements for proper electronic filing with CRA
• Compilation Engagement (CSRS 4200) year-end financial statements when required by lenders, shareholders, or simply for management
• Small business deduction optimization, including analysis of taxable capital employed in Canada (associated corporations rule) and passive investment income grind under the $50,000 passive income threshold
• Eligible and non-eligible dividend designation, with proper GRIP and LRIP tracking carried forward year over year
• Refundable Dividend Tax On Hand (RDTOH) tracking — both the eligible RDTOH (ERDTOH) and non-eligible RDTOH (NERDTOH) accounts
• Capital cost allowance (CCA) schedules with optimization of which classes to take CCA on, and which to defer
• Owner-manager remuneration analysis: an annual recommendation on the optimal mix of salary, dividend, and bonus payable to the owner-manager based on personal cash needs, RRSP planning, CPP, and TOSI considerations
• Inter-corporate dividend planning between connected corporations
• Shareholder loan tracking with subsection 15(2) shareholder benefit risk analysis
• T5 and T5018 information return preparation as needed
• Provincial corporate income tax returns where required (CO-17 for Quebec; AT1 for Alberta; corporate filings for Ontario, BC, Saskatchewan, etc.) — note that for most provinces the federal T2 is also accepted as the provincial return under the Tax Collection Agreements
• CRA correspondence handling for any post-assessment reviews, GST/HST audits, payroll audits, or T2 reassessments

The small business deduction — the single most valuable Canadian corporate tax provision

The Small Business Deduction (SBD) reduces the federal corporate tax rate from 15% to 9% on the first $500,000 of active business income earned by a Canadian-controlled private corporation. Combined with provincial small business rates, the resulting combined rate ranges from approximately 9% in Manitoba and Yukon (which charge 0% provincial small business rate) up to about 12.2% in Ontario, Quebec, and Prince Edward Island.

Several rules can grind, reduce, or eliminate the SBD: passive investment income exceeding $50,000 in a year (each additional dollar reduces the small business limit by $5 until fully phased out at $150,000 of passive income); taxable capital employed in Canada exceeding $10 million; and the requirement to allocate the $500,000 limit across associated corporations. Many T2 preparers miss the passive income grind entirely. We model it annually and recommend strategies (rebalancing investment portfolios, separating active and passive corporations, holding-company restructuring) to preserve as much of the SBD as possible.

Salary vs dividend — analyzed annually, not assumed

The salary-vs-dividend question for an incorporated business owner has no permanent answer. The right mix depends on personal cash needs, RRSP contribution room, CPP strategy, mortgage and lending considerations, family income splitting (constrained by TOSI), and the corporation's GRIP and RDTOH balances. We model both extremes (all salary versus all dividend) and several mixed scenarios annually, then recommend the specific dollar amounts of T4 salary and T5 dividend that will minimize total combined corporate-plus-personal tax for the year and set you up well for the following year.

TOSI — the death of casual income splitting

Before 2018, paying dividends to a spouse or adult children who owned shares in the family corporation was one of the most common and most effective Canadian small business tax strategies. The 2018 Tax on Split Income (TOSI) rules effectively shut that down for most fact patterns. Dividends paid to family members of the active business owner are now taxed at the top marginal personal tax rate unless they meet a specific exception (spouse 65+, family members owning at least 10% of vote and value of the corporation that is not a service business, family members who actively work 20+ hours per week, capital gains on a qualified disposition, etc.). T2 engagements with family-owned corporations include a TOSI compliance review every year.

Our process

1. Discovery conversation about your corporation's history, prior accountant, year-end, complexity, and goals
2. Written engagement letter with fixed fee, scope, and deadlines
3. Document collection through secure client portal (bank statements, prior-year T2, prior-year financial statements, current-year bookkeeping file)
4. Bookkeeping review and year-end adjustments; preparation of Compilation Engagement financial statements
5. T2 preparation with full schedule support
6. Draft review with you, including owner-manager remuneration recommendation
7. E-filing under your written authorization with CRA
8. Post-filing follow-up including any CRA correspondence

Deadlines and penalties

T2 returns are due six months after the corporation's fiscal year-end. A corporation with a December 31 year-end has a T2 due June 30. Corporate tax owing is due two months after year-end for most corporations and three months after year-end for CCPCs claiming the small business deduction throughout the year and meeting the taxable income threshold. Late filing penalties are 5% of the unpaid tax plus 1% per month for up to 12 months. Repeat late filers face higher penalties (10% plus 2% per month for up to 20 months) if the corporation was previously demanded to file. Interest is compounded daily at the prescribed rate.

Frequently asked questions

Related services

T2 corporate tax connects to many other services we provide: Compilation Engagement financial statements, monthly small business accounting, payroll and CRA source deductions, incorporation and first-year setup, proactive tax planning, and CRA audit support.

What Canadian businesses commonly miss about this service

Across the hundreds of Canadian businesses we work with, the same handful of issues come up repeatedly. Many small business owners delay engaging professional accounting until a crisis: a CRA review letter, an unfiled GST/HST return demand, a denied bank loan because financial statements aren't ready, or a Notice of Reassessment that arrived weeks ago. By the time we are first contacted, the cost to fix the problem is often several times what proper ongoing accounting would have cost from the start. Proactive engagement is dramatically cheaper than reactive cleanup.

The Canadian tax landscape also changes constantly. Recent changes that affect most Canadian taxpayers include the 2023 anti-flipping rule (residential real estate sold within 365 days is automatically business income, not capital gain); the Underused Housing Tax (UHT-2900 annual filing requirement for many corporations, partnerships, and trusts holding residential property even when no tax is owing — with $5,000 to $10,000 per-property failure-to-file penalties); the Quebec QST joint registration changes since 2021; the post-2018 Tax on Split Income (TOSI) rules that effectively eliminated casual income splitting through family dividends; the post-2021 $200,000 stock option vesting limit on the 50% deduction for options granted by non-CCPCs; the CSRS 4200 Compilation Engagement standard replacing the older Notice to Reader engagement; and ongoing CRA increased scrutiny on pre-construction assignments, short-term rental businesses, and cash businesses.

How BOMCAS Canada delivers this service

Every engagement begins with a written, fixed-fee engagement letter signed before any work is performed. The engagement letter describes exactly what is in scope, what deliverables you will receive, when those deliverables are due, what your monthly or project fee is, and what (if anything) is outside scope. This eliminates the hourly-billing surprise that most accounting clients fear. The only time we use hourly billing is for genuinely unpredictable items such as CRA audit response or complex one-off projects — and even then we agree to a maximum cap before starting.

Once the engagement letter is signed, you e-sign the CRA authorization (RC59 for businesses or AUT-01 for individuals), and we onboard you to the encrypted client portal with multi-factor authentication. All document exchange flows through the portal — no emailing of sensitive financial documents. Meetings happen by video conference or phone at times that work for you, including outside normal business hours when needed.

Our Canadian tax compliance philosophy

BOMCAS Canada is structured around four operating principles:

1. Tell the truth. If a tax position is aggressive, we say so. If a deduction will not survive a CRA review, we say so. If the engagement is going to cost more than originally quoted because the scope changed, we say so before doing the work.
2. Bill what we said we would bill. No surprise invoices. No scope-creep billing. If something legitimately changes scope, we discuss it and re-quote before doing the additional work.
3. Answer the phone. One-business-day response standard on client communications during normal business hours. No voicemail backlogs.
4. Specialize. Canadian tax and accounting is too complex to be a generalist. We do not do US-only tax, UK tax, or any other foreign jurisdiction in isolation. We are Canadian. Our cross-border work is always anchored by deep Canadian compliance.

What ongoing engagement with BOMCAS Canada looks like

For most clients, the ongoing relationship is structured around predictable monthly deliverables. For an incorporated small business client, that typically includes: monthly cloud bookkeeping with full bank and credit card reconciliation; quarterly or annual GST/HST returns prepared and filed; monthly payroll for owner-managers and any employees, with CRA source deduction remittances; year-end Compilation Engagement (CSRS 4200) financial statements; T2 corporate income tax return; owner-manager T1 personal tax return (and spouse where applicable); annual salary-vs-dividend optimization with written recommendation; unlimited email and phone support during business hours; one quarterly check-in call to review numbers and discuss the business; and CRA correspondence handling for routine review letters.

For a personal tax client, the ongoing engagement includes: annual T1 preparation; any required Quebec TP-1 (for Quebec residents); CRA pre-assessment and post-assessment review response when CRA requests additional documentation; Notice of Assessment reconciliation; and proactive tax planning conversations during the year about RRSP, TFSA, and FHSA contributions, major life events (marriage, kids, retirement, real estate), and any planned business or investment changes.

Frequently asked questions about engaging BOMCAS Canada

Why Canadian businesses choose specialized accounting over generalist accounting

The Canadian tax and accounting landscape has become significantly more complex over the past decade. The 2018 TOSI rules, the 2021 changes to stock option taxation, the 2022 mandatory reporting changes for trusts, the 2023 anti-flipping rule, the Underused Housing Tax, the changes to the small business deduction phase-out for passive investment income, the new CSRS 4200 Compilation Engagement standard, the continued expansion of digital sales tax rules, and the ongoing post-COVID CRA focus on cash businesses and unreported income have all required accountants to specialize more deeply. A generalist firm trying to cover personal tax, corporate tax, US tax, real estate, trusts, cross-border, and every industry vertical inevitably falls behind on the depth of expertise that any one client needs.

BOMCAS Canada is structured deliberately to maintain depth: we are Canadian-only by design; we work in industries where we have genuine specialized experience; we maintain ongoing professional education in Canadian tax law; we use Canadian-experienced staff at every level; and we coordinate with specialized partners (US-licensed cross-border, legal counsel for corporate restructuring, audit-engagement licensed practitioners) where required rather than trying to handle everything in-house.

Talk to a Canadian accountant

Call 780-667-5250 or submit the contact form. We respond within one business day and provide a fixed written quote before any work begins.

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