A Guide to Corporate Tax in Canada

May 28, 2021 | Written by: Sohail Afzal

a-guide-to-corporate-tax-in-canada

As a business owner, you may have to deal with several types of tasks on your own. There are times when you, as the owner, will also have to do tasks that you never thought you would end up doing. We have all been there. But never should come a time when a business owner, who is not well versed with the Canadian Tax rules, has to do their bookkeeping, especially when it’s a corporation.

Since there is no individual ownership in a corporation, it is highly recommended to have in-house bookkeepers or accountants who regularly update all the firm’s books.

We have compiled a brief guide for those who are engaged with a corporation in Canada. This guide discusses the different types of corporations in Canada, along with their tax requirements.

Types of Corporations in Canada

Types of corporations can be divided into four main categories, including:

  1. Canadian-Controlled Private Corporation (CCPC)
  2. Public Corporation
  3. A subsidiary of a Public corporation
  4. Other private corporation

1.  Canadian-Controlled Private Corporation

A corporation can only be considered a CCPC if it meets all the requirements. This is a unique status for a business in Canada and can earn several benefits for the owners. These tax benefits may include enhanced investment tax credits, lifetime capital gain exemptions, small business deductions, etc. When a Canadian-controlled private corporation claims small business deductions, they pay 9% in lieu of tax.

2.  Public Corporation

For a corporation to be as authentic as a public corporation, the first and foremost requirement is to be a Canadian resident corporation. If a corporation is a resident in Canada, then by meeting either of these requirements, it can be considered a public corporation. There are several tax and monetary benefits for public corporations in Canada, such as easier access to the capital, existence as a separate legal entity, and higher chances for long-term sustainability.

3.  A subsidiary of a Public Corporation

A corporation is a subsidiary of a public corporation if it is directly controlled by that public corporation. This corporation also has to be a Canadian resident, just like its major public corporation. The difference between a subsidiary and an actual public corporation in terms of taxes is that the subsidiary corporation does not qualify as a public corporation when filing T2 Corporation Income Tax Return.

4.  Other Private Corporation

Except for a public corporation, all the other types of corporations fall into Other Private Corporations. But to be a tax registered Private corporation, the corporation must be resident in Canada, not controlled by one or more public corporations (except for a prescribed venture capital corporation as per Regulation 6700 of Income Tax Regulations.

How to deal with Corporation Taxes?

We understand that all of it may look very complex for new corporations. The best way to handle your corporate taxes is to consult a professional corporation accounting firm that is reliable and experienced. When you hire an accounting firm for your corporation taxes, they will guide you about all these intricate processes and make it a lot easier and accurate for the corporation. Corporate tax returns services may differ according to the different regions of Canada. Other benefits that come as complimentary with a professional accounting firm may include preparing financial statements, regular bookkeeping, strategic tax planning according to the type of corporation, cash flow, budget analysis, etc. Your corporation can also benefit from the long-haul experience of these firms with corporation tax accounting.

 The Take-Away

No matter what type of corporation you own or a part of, you will have to deal with the corporate tax returns at the end of the tax year. It is best if the tax returns are filed and prepared by a professional accounting firm. You can easily contact such an accounting firm in Canada.

Sohail Afzal CPA Toronto

Sohail Afzal, CPA, CMA, MBA

Sohail Afzal, (CPA, CMA, MBA) is the founder & CEO of GTA Accounting Professional Corporation. He is a highly experienced Chartered Professional Accountant and businessman himself and understands the challenges that many businesses face when it comes to cash flow management. As an experienced business consultant & tax advisor, he is helping companies grow by providing the technical, financial, and contractual information necessary for strategic decision-making.

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