All the residents of Canada who are running a corporation have to file a corporation income tax (T2) return every tax year. It doesn’t matter if there is tax payable or not. That’s the reason why you need to have a detailed understanding of the corporate income tax.Non-profit organizations, tax-exempt organizations, and inactive corporations all have to file the Corporation income tax.Corporate taxes in Canada is controlled by the Canada Revenue Agency (CRA). When you are not a resident of Canada but are running a business in Canada, the corporate tax would be applicable on that income.Let’s learn more about all the details of the corporate income tax.
What is Corporate Income Tax?
A corporate income tax is a type of direct tax which corporations pay. It is implemented by the jurisdiction on the income of the corporations. There are many countries where this tax gets imposed on the national level, state-level or local levels.The corporate income tax is also known as the income tax and capital tax. At the entity level, partnerships are not usually taxed. A country’s corporate tax will apply to:
- Corporations of the country
- Corporations doing business in the country and profiting from it
- Companies from other countries that have a permanent presence in the country
What do the Economists Say About Corporate Income Tax?
Economists don’t agree on how much of the corporate income tax burden falls on owners, workers, and consumers, and how the corporate tax affects the overall economic growth and economic inequality. Most of the burden is bear by the capital in large in the open economize like the US. In some of the studies, it has been seen that it falls onto the labor.
Types of Corporations in Canada
When you are going to start your business, you have to choose which structure of the business you will follow. You have options to choose from. One of them is to create a corporation. The biggest advantage of choosing to go for the corporation is that it offers credibility and reduces liability. Secondly, corporations are taxed in a different way than the normal businesses in Canada.Here are the types of corporations in Canada:
- Canadian-Controlled Private corporation
- Other private corporation
- Public corporation
- Control by a public corporation
When choosing the corporation, you’d think that the sole proprietorship and partnerships can be easily created with less money. However, the corporations have the benefit of protection from liability and offer credibility. Moreover, when you are shifting your small business as a corporation, it would be smart to go for a Canadian-controlled private corporation as it has the corporate tax-advantaged.
Conclusion
Now you are familiar with the definition and the details of the corporate income tax in Canada. Filing your corporate income tax return is not as easy as it sounds. There are so many complexities. If you are running a corporation in Canada and don’t want to get in the hassle of all the processes regarding the corporate income tax, then you can contact an accounting firm who will help you out in this matter.