All Canadian corporations (except tax-exempt Crown corporations, Hutterite colonies and registered charities) have to file a corporation income tax (T2) return every year regardless if they owe any taxes. This includes:
- non-profit organizations
- tax-exempt corporations
- inactive corporations
Most corporations can file their return electronically. It is mandatory for certain corporations with annual gross revenues that exceed $1 million to file online.
The basic corporate rate of tax is 38% of your taxable income, or 28% after the 10% federal tax reduction. This reduction is to account for provincial corporate taxes even if the provincial taxes are higher or lower than the 10%.
After the "general tax reduction" of 13% available on qualifying income the tax rate can be 15%.
Corporations benefit from the "general tax reduction" only on taxable income that is subject to a rate of basic corporate rate of 38%.
The reduction does not apply to income that benefits from preferential corporate tax treatment, such as:
- income eligible for the small business deduction and Canadian manufacturing and processing income
- income eligible for the deduction for the generation of electrical energy for sale or the production of steam for sale
- income eligible for the additional deduction for credit unions
For Canadian-controlled private corporations claiming the small business deduction of 18%, the net tax rate is 10%.
Provincial or territorial rates
Generally, provinces and territories have two rates of corporate income tax – a lower rate and a higher rate.
The lower rate applies to the income eligible for the federal small business deduction. One component of the small business deduction is the business limit. Some provinces or territories choose to use the federal business limit. Others establish their own business limit. BC lower rate is 2%.
The higher rate applies to all other income. BC higher rate is 12%.