What the T2 return is
The T2 is the income tax return every Canadian corporation files with the Canada Revenue Agency (CRA), whether or not it earned a profit or owes tax. It reports the corporation's income, deductions and tax for one fiscal year, and it is filed with financial statement information in the GIFI (General Index of Financial Information) format. T2 returns must be filed electronically.
If you run a corporation, the T2 is separate from your personal T1 return. Your accounting records should be ready before year-end work begins, so see our accounting and bookkeeping service for how we prepare for filing.
A first-year corporation often has a short or odd fiscal period, which changes the due dates. Choose the year-end deliberately, because it sets your filing deadline, your instalment pattern and when your accountant is busiest. Many owners keep the default, but a different year-end can spread the workload.
Deadlines that matter
There are two dates, and they are not the same:
- Filing due date: within six months of the corporation's year-end (the last day of the sixth month).
- Balance due date: generally two months after year-end. Some Canadian-controlled private corporations (CCPCs) get three months.
To qualify for the three-month balance due date, a corporation must meet all three conditions: it was a CCPC throughout the year, it claimed the small business deduction in the current or previous year, and its taxable income for the previous year (for the associated group in total) did not exceed its business limit. The CRA explains the details on its filing deadline page.
Because the payment date comes before the filing date, many owners miss the payment date by accident. Estimate your tax early and pay on time even if the return is not finished.
What the small business deduction does
The small business deduction (SBD) lowers the federal tax rate on the first slice of active business income earned by a CCPC. The CRA's current rates table shows:
| Item | Rate or amount |
|---|---|
| Federal rate with the SBD (net) | 9% |
| Federal general rate (net) | 15% |
| Ontario small business rate from July 1, 2026 | 2.2% (previously 3.2%) |
| Ontario general rate | 11.5% |
| Business limit (federal and Ontario) | $500,000 |
Together, the federal 9% and the Ontario 2.2% give a combined small business rate of 11.2% from July 1, 2026, compared with 12.2% before that date. If your tax year straddles July 1, 2026, the rate is prorated by the number of days before and after. The Ontario change was legislated in 2026, and some CRA pages were slower to update than the rates table, so confirm figures on the CRA corporate tax rates page before you plan around them.
Who qualifies and how the business limit works
To claim the SBD, the corporation must be a CCPC and the income must be active business income earned in Canada. Several rules can reduce or remove the benefit:
- Associated corporations share one limit. If you control more than one corporation, or are connected to others in certain ways, the $500,000 business limit is shared among the group.
- Passive income can reduce the limit. When adjusted aggregate investment income is between $50,000 and $150,000, the business limit is reduced on a straight-line basis. Above $150,000, the limit is nil for that year.
- Income above the limit is taxed at the general rate.
The passive income rule affects owners who keep investments inside the corporation, so a corporation that earns interest or dividends should review the numbers before year-end. Our guide to Ontario vs federal incorporation covers why the structure choice matters.
Paying instalments during the year
Corporations pay tax in instalments instead of waiting until the balance due date. You do not need to pay instalments if your tax payable is $3,000 or less in either the current year or the previous year. Monthly instalments are the general rule. Quarterly instalments are available to a CCPC that has a perfect compliance history, taxable income of $500,000 or less and taxable capital of $10 million or less. See the CRA's instalment dates page.
Interest on late or short instalments is compounded daily. An instalment penalty applies only when instalment interest exceeds $1,000, but the interest itself still costs money.
Penalties and other deadlines
- Late filing: 5% of the unpaid tax, plus 1% of the unpaid tax for each complete month the return is late, up to 12 months.
- Repeat late filing: if you were late in a recent year and the CRA issued a demand to file, the penalty becomes 10% plus 2% per month, up to 20 months.
- Refunds: you generally have three years to file to claim a refund.
- Records: keep books and supporting documents for six years from the end of the last tax year they relate to.
Credits you might miss
The T2 is also where credits are claimed. If your corporation does scientific research or experimental development in Canada, it may be eligible for the SR&ED program. Read our overview of SR&ED eligibility or the SR&ED service page. SR&ED claims have their own forms and deadlines, so plan them in parallel.
A year-end preparation checklist
- Reconcile bank, credit card and loan accounts to year-end.
- Confirm HST/GST filings and payroll remittances are current. Our GST/HST guide can help.
- Review shareholder loan balances and owner payments.
- Check whether the corporation is associated with others and how the limit is shared.
- Estimate tax payable and pay by the balance due date.
- Prepare the financial statements and file the T2 electronically before the filing deadline.
- Set up instalments for the next year if required.
If you want a second set of eyes on your first or next return, contact our team.