Understanding the Corporate Income Tax Return

Filing Corporate income tax return

How to Understanding the Corporate Income Tax Return in Edmonton and Canada? Taxation of companies and the individuals who own them is handled differently than it is under the standards that apply to other types of businesses. According to the legislation, a corporation is considered as an independent legal entity, and as such, it is required to pay taxes that are based on the net income that it has earned.

What factors influence a company’s taxable income?

The amount of profit that remains after all business expenses have been subtracted and before any dividends are issued to the corporation’s investors is referred to as the income of the company. This amount is known as the net income of the company. To be more precise, the income that is subject to taxation for a corporation is equal to the revenue less the elements listed in the following clause:

• Expenses that are deemed to be current and, as a result, are available for deduction in the same year that they were incurred, such as wages, fees, rent, and interest on borrowings; Expenses that are not considered to be current and, as a result, are not eligible for deduction;
• invests in assets with a long-term outlook, such as infrastructure and production equipment; and
• The deductions for business losses that can be claimed for either the preceding years or the years that will follow.

Corporate tax obligations and reporting requirements

A corporation is required to submit its own individual income tax return within the prescribed time frame of six months after the conclusion of its accounting period, even if there is no tax liability associated with the corporation. This obligation exists regardless of whether or not the corporation has a tax liability. On behalf of corporations that are active in the provinces, one tax return is required to be submitted to the federal government, and another tax return is required to be submitted to the provincial government. There is also the possibility that a corporation will be required to file tax returns and make tax payments on a monthly basis, with the last day of the month serving as the due date for each instalment of the monthly payment. This requirement is conditional on the level of revenue that the company achieves during the specified time period. With the exception of Alberta and Quebec, all of the provinces and territories in the country depend on the federal government to collect taxes on corporate revenue.

What are the Corporate Tax Rates?

Both the federal government and each individual province have their own versions of the corporate income tax. The general rate of taxation levied by the federal government is 15% of taxable income.

Small business deduction (SBD)

When compared to the rate of corporate income tax paid by other types of corporations, the rate that is paid by small Canadian-controlled private corporations (CCPCs) that are eligible to claim the small business deduction is lower.

The maximum amount that can be deducted for a CCPC’s small business is determined not only by the maximum amount that can be deducted for a CCPC’s small business, but also by the income from an active business that is operated in Canada. Multiplying the SBD rate by whichever of the following is the lesser will give you the total amount that can be deducted from your salary:

• income generated during the year by an active business that was carried on in Canada, net of certain income and in excess of specified losses;
• annual revenue that is subject to taxation; and
• business capacity capped for the year

The rates for the small business deduction (SBD) are as follows:

• On the first $500,000 of taxable income, CCPCs with taxable capital of less than $10 million are subject to a tax rate of 9.0 percent. This rate applies to the entire taxable income. This sum denotes the maximum taxable income that can be generated by a small firm.
• For CCPCs with taxable capital between $10 million and $15 million, the small business ceiling of $500,000 in taxable income is reduced at the rate of $1 for $10 of capital over $10 million. This reduction takes place over a period of five years.
• Due to the fact that they do not satisfy the requirements, CCPCs with taxable incomes that are greater than $15 million are not qualified to take advantage of the small business deduction.

What precisely is the CCPC?

Consult a tax attorney or an accountant if you are interested in determining whether or not your company is eligible to be classified as a Canadian-controlled private corporation (CCPC). Alternatively, you can visit canada.ca for a comprehensive list of the requirements to be eligible for this classification. If you are interested in learning whether or not your company is eligible, it is recommended that you seek the advice of a tax attorney or an accountant today.

What are the corporation tax rates on a provincial or territorial basis?

In general, provinces and territories have two distinct income tax rates: one rate, which applies to the income that is qualified for the federal small business deduction, and another rate, which applies to all other types of income. The lower rate applies to the income that is qualified for the federal small business deduction. The higher rate applies to all other types of income. The business limit for each province is determined by the federal government, with the exception of Saskatchewan, which places a limitation of $600,000 on the amount that eligible businesses can receive from the SBD.

The national average for the higher rate in Canada in 2021 was ranging between 8% and 16%, with Alberta having the lowest rate at 8% and Prince Edward Island having the highest rate at 16%. These prices are subject to change at any time without prior notice.

Further information regarding the tax rates that are applicable to corporations.

For more information on the current tax rates that apply to corporations in your particular province or territory, visit the Canada Revenue Agency webpage titled “Corporation tax rates.” This page can be found on the website of the Canada Revenue Agency.

The governments of Quebec and Alberta have not been able to come to an understanding with the Canada Revenue Agency concerning the manner in which they will collect taxes from corporations. Visit the Revenue Québec website if you want more information about the tax rates that apply to corporations in Quebec. For further information about Alberta’s corporate tax structure, you can get in touch with the Treasury Board and Finance department of the Alberta government.

The tax implications of receiving dividends or receiving a salary from a corporation

Because the tax ramifications of withdrawing money from your firm may differ depending on how you are paid, it is imperative that you understand how you will be paid prior to making this decision. A company has the option of paying an individual via one of these methods in the vast majority of situations. Typically, if you are an employee of the company, you will be eligible for a salary, and if you are eligible for dividends, you will also be eligible for those payments if you are a shareholder in the company. If you are eligible for both, then you will be eligible for both if you are a shareholder in the company.

Income derived from employment

If you are an employee of the company and receive compensation from them, the standard employee deductions will be deducted from your paychecks and reported to the CRA. These deductions will not be taken from your paychecks if you are not an employee of the company. These deductions include employment insurance premiums and income tax. There may be deductions for additional items. You will be expected to pay taxes based on the personal tax rate relevant to your circumstances. If you are a salaried employee, you may be able to decrease your direct tax liability by contributing to an RRSP and deducting those payments from your taxable income. To accomplish this, you must be able to demonstrate eligibility for the deduction.

Dividends

When it comes to bringing in cash, shareholders of privately owned companies have access to various options, one of which is the possibility of receiving dividends. If you have dividend income, the RRSP deduction that is normally available to you will not be able to help you reduce the amount of income that is subject to taxation. On the other hand, because of the dividend tax credit, the percentage of your dividend income that is subject to taxation is lower than the percentage that would apply if you were being paid a salary. This is due to the fact that dividends are considered to represent income from investments.

The rate of tax that is levied on companies is what will decide how big of an effect the payment of dividends has on the individual taxes of a person who owns shares in a corporation. One of the differences that can be made between dividends and salaries is that a corporation is able to deduct salaries as an expense before it has to pay taxes, whereas dividends are paid out of income that has already been taxed. This is just one of the ways that dividends and salaries can be differentiated from one another.

Additional taxes 

In addition to that, it is possible that a company will be required to collect and hand over payments for additional taxes. The most common sorts of taxes include payroll taxes, the Harmonized Sales Tax (HST), the Provincial Sales Tax (PST), and the Goods and Services Tax (GST), whatever is applicable in your province or territory.

Fiscal period

Because corporations are able to choose a fiscal period other than the calendar year, they have greater leeway than sole proprietorships and partnerships do when it comes to computing and paying taxes. Additionally, by utilizing this tactic, businesses are able to delay the payment of their taxes.

If you are interested in learning more about taxes and accounting for businesses, you can get more information at https://bomcas.ca, speak with a tax attorney or accountant, or go to Canada.ca. Visit the website of the Canada Revenue Agency for more general information regarding taxes.

However, if you require assistance in preparing and paying your Corporate taxes, BOMCAS Canada Accounting and Tax Preparation Services would be delighted to hear from you. Click here for BOMCAS Corporate Tax help.