Corporate tax compliance involves the process of making tax adjustments to the financial statements and reporting the figures in the appropriate schedules in order to calculate the corporation's tax payable for the year. Once this is determined you can apply any tax instalments made in the year, any loss carry forwards, and then arrive at you taxes payable for the fiscal year.
The Corporate Tax Compliance process is as follows:
1) Start from accounting financial statements prepared:
Start with Net income before taxes and then you will need to make the applicable tax adjustments.
2) Make all applicable tax adjustments which includes the following:
These adjustments are found on schedule 1 of the corporate tax return:
- All non-cash expenses ( i.e., accounting depreciation on capital assets)
- Add back any gains or losses on the disposition of capital property
-CCA (Capital Cost Allowance), this is essentially tax amortization on all capital property held in the year or added in the year. Please note: additions are subject to the half year rule, i..e we can only deduct 50% of the CCA in year 1.
- Include the capital gains and losses incurred from disposition of capital property. Please note that the gains and losses are 50% taxable(allowable)
-Meals & Entertainment: this is a 50% add back.
- Tax penalties and interest: this is an add back since it is not deductible for tax purposes.
-Add back specific non-deductible expenses: Green's fees for golf, other
- Legal & Accounting fees outside of the normal course of business: For example Any such fees incurred for services other than the usual fees for work in the normal course of business (e.g., capital transactions, incorporation costs, corporate reorganizations, issuing share capital or debt, or acquisition of significant capital assets)
- Advertising to a Canadian markets however appearing/broadcasting in Foreign countries. This is not deductible for Canadian tax purposes.
-Foreign exchange gains or losses: FX gains and losses not relating to trade items may be considered on account of capital and thus included as taxable gains/losses. For tax purposes, FX gains and losses on account of income are generally recognized on an accrual basis whereas FX gains and losses on capital account are generally recognized when realized.
- Bonuses, salaries, or retiring allowances for employees that has been expensed, but not paid within 180 days of the corporate year end. These are not deductible.
- Charitable donations: this is to be added back on schedule 1 and included on line 131 of the federal jacket. These are deductible but only if the company donated to registered charities.
3) Calculation of net income for tax purposes:
Once all tax adjustments have been made, your taxes payable is determined based on the relevant tax rates.
For CCPCs ( Canadian Controlled Private Corporations), the Combined Federal & Ontario Tax Rate is 15.5%, up to $500,000 of net income if you are eligible for the small business deduction. Otherwise you will be paying the higher rate of 26.50% for general income not subject to the small business deduction.
4) Completion of other schedules:
Schedule 2: Charitable Donations and Gifts
Schedule 3: Dividends Received of Paid
Schedule 4: Loss carry back and carry forward
Schedule 5: Allocation of Taxable Income: If your business operates in different provinces.
Schedule 6: Dispositions of Capital Property
Schedule 7: Investment Income
Schedule 8: Depreciation Assets: for determining CCA
Schedule 9: Related and Associated Corporations: important for sharing of the $500,000 limit for the small business deduction.
Schedule 10: Intangible Assets
Schedule 11: Transactions with Shareholders, Officers, Employees
Schedule 13: Reserves
Other schedules relating to foreign property and transactions.
5) File your Return on Time:
-Tax payments are due 2 months after the fiscal year end.
-Tax Returns are to be filed 6 months after the fiscal year end.
MP Group Can Help You This Corporate Tax Season.
If you need assistance this corporate tax season, please contact and MP Group Advisor.
Call us at 416-214-0527, or Contact a Partner below.