Filing your corporate tax return can be an administrative hassle when its tax season. It is always a good idea to avoid interest and late filing penalties as proper management of your company. Here are a few tips to consider when filing your corporate tax return:
Corporate tax returns are generally due 6 months after your corporations fiscal year end. However, the tax payment is actually due 2 months after the fiscal year end. As such, preparing a tax estimate would be useful in determining what the corporate taxes may be and ensuring that your corporation has paid enough corporate taxes via instalments before the 2 month deadline.
The starting point for preparing your tax return is the company’s Trial Balance, Balance Sheet, and Income statement. Ensure having all accounting entries posted and that all transactions are accounted for. The Corporate tax returns will be updated for the accounting net income and financial data and to be entered in the General Index of Financial Information (GIFI).
You will also need other corporate information such as the CRA Business number, Incorporation number, name of Directors, contact information, share structures, etc.
Identifying Common Adjustments:
There are some differences between the accounting and tax treatment for various transactions such as the following:
- All non-cash expenses (i.e., share based compensation, allowances for bad debts or other reserves)
- 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.
Review Schedules that may apply to the Corporation
There are additional schedules that would need to be prepared. Most schedules have a good description on what needs to be reported. The following schedules should be reviewed in addition to the Schedule 1:
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, and Employees
Schedule 13: Reserves
Other schedules relating to foreign property and transactions.
For more information and guidance, feel free to contact an MP Group professional.