CORPORATE TAXPREP www.htkacademy.com www.htkacademy.com
Lecture Component Agenda • Acronyms and Terms • Taxation System in Canada • Types of business entities • Who has to file a T2? • What is the filing requirement for non-resident corporation? • Canadian resident corporation • Types of corporations • Tax Rate for corporations • Taxation year & deadlines • Overview of corporate tax www.htkacademy.com
Acronyms and Terms i) CRA – Canada Revenue Agency ii) T1 – Canadian Personal Tax Return iii) T2 – Canadian Corporate Tax Return iv) T3 – Trust Income Tax Return v) T5013 – Partnership Information Return vi) T-Slips – Slips issued for tax purposes and are not actual tax returns (i.e. T4, T2202A etc.) vii) GIFI – Means financial statement www.htkacademy.com
Taxation System in Canada • Like any other law in Canada, tax law is a legal statute. • The statute is the Income Tax Act (ITA). Requires a lot of interpretation Sources of interpretation: ➢ Canada Revenue Agency ➢ Department of Finance ➢ Court cases www.htkconsulting.com
Types of business entities Type of business entity Filing requirement Sole Proprietorship Personal tax return (T1) – Form 2125 Not a separate legal entity Partnership Personal tax return – Form 2125 Or T5013 Return – If meets certain criteria Not a separate legal entity Corporation Canadian Corporate Tax Return (T2) Separate legal entity www.htkconsulting.com
Who has to file a T2? All corporations including non-profit organizations, tax-exempt corporations, and inactive corporations have to file a T2 return for every tax year, even if there is no tax payable. Exception The tax-exempt Crown corporations, and corporations that were registered charities throughout the year are not required to file a T2 return. www.htkacademy.com
Who has to file a T2? Non-resident Corporations A non-resident corporation has to file a T2 return if, at any time in the year, one of the following situations applies: ■ it carried on business in Canada; ■ it had a taxable capital gain; or ■ it disposed of certain taxable Canadian property This requirement applies even if any profits or gain(s) realized are claimed by the corporation to be exempt from Canadian income tax due to a tax treaty www.htkacademy.com
Canadian Resident Corporation? Should meet one of the two criteria's Corporation's “central Incorporated in Canada management and OR after April 26, 1965 control” decisions are made in Canada • Management and/or directors reside in Canada and/or meet in Canada • Headquarters located in Canada www.htkacademy.com
3 Types of Corporations in Tax 1. Public Corporations 2. Private Corporations 3. Canadian Controlled Private Corporations (CCPC) Haroon Toronto Stock Exchange Publically Traded 100% Examples 1. Blackberry HTK Consulting 2. Rogers Inc. 3. Telus Shares are not traded on stock exchange Private Corporation + Controlled by a Canadian Resident **Most Common www.htkacademy.com
Flat tax rate system with 2 rates for corporation (Small Business vs. General) SMALL ALL OTHER CORPORATIONS CORPORATIONS 13.5% (GENERAL) 26.5% www.htkacademy.com
Type of income earned by corporations • Canadian controlled private corporations • Active business income – Taxed at 13.5% for income upto $500,000 and the excess income is taxed at 26.5% • Aggregate investment income – Taxed at 50.17% • Private corporations & Public corporations • Active business income – Taxed at 26.5% • Aggregate investment income – Taxed at 26.5% www.htkacademy.com
Taxation year & deadlines Taxation year = Any 12 month period If Corporation is a CCPC All other throughout the year AND corporations claimed the Small Business Deduction 6 months after year Deadline for tax return (T2) 6 months after year end end 2 months after year Deadline for taxes owing 3 months after year end end Late filing penalties will be discussed towards the end of the course. www.htkacademy.com
Overview of Corporate Tax You always start from an accounting net income and adjust for tax purposes www.htkacademy.com
Overview of Corporate Tax TAX ACCOUNTING ABC Inc Accounting Net Income 400,000 Income Statement December 31, 2014 Add Back 50% Meals/Entertainment 10,000 Golf Fees 10,000 Revenue 1,000,000 Contingent Expense 55,000 Accounting Amortization 15,000 90,000 Expenses Wages 200,000 General and Admin 300,000 Deduct: Meals and Entertainment 20,000 Tax Amortization (CCA) (10,000) Golf Fees 10,000 Amortization 15,000 Contingent Expense 55,000 Taxable Income 480,000 Total Expense 600,000 Tax Rate 15.50% Net Income 400,000 Tax Payable 74,400 www.htkacademy.com
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