In this article, we will continue discussing knowledge about corporation tax. It is based on the CRA income tax guide, which you can download the PDF below.
I just incorporated my business. What is the corporation tax my company must pay?
For a small Canadian-controlled private corporation (CCPC) – registered in Ontario, the tax rate for active business income is 12.2% (Federal 9% + Ontario 3.2% in 2021). For example, if your annual sales is $100,000, the business expenses are $20,000, and salary paid is $60,000, the tax owing will be (100,000 – 20,000 – 60,000) * 12.2% = 2,440
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What is my obligation after I incorporate my business?
After you incorporate your business, you must file a corporation tax return every year, even for years your business is not active.
If you opened an HST or payroll account with the CRA, you must file HST and payroll remittance quarterly or annually, even if your business is not active.
I want to close my corporation. How can I do it?
If your corporation has no obligation and no retain earning, you can choose to close it. For federal corporations, you need to get a certificate of dissolution from Corporation Canada online, file your final tax returns to the CRA, and call the CRA to close all types of accounts the company has (payroll account, HST account, etc.).
What is my company tax deadline?
Normally, the corporation tax filing deadline is six months after your year end date. However, the deadline for payment on tax owing is three months after the end of the tax year.
If you file your HST annually, the filing deadline is typically three months after your year end. If you file HST monthly or quarterly, the return and the payment are due one month after the end of the reporting period.
If you remit your payroll monthly, the payroll remittance is on the 15th day of the month. If you are a quarterly remitter, your remittance due date is on the 15th of the month after the calendar quarter. (April 15, July 15, Oct. 15, Jan. 15).
How can I pay my corporation taxes? Do I need to pay installments?
If the tax owing is more than $3000, you need to pay installments or else the CRA will charge you interest on the tax owing. You can do it through your business online banking (contact your bank for instructions) or pay through the CRA My Payment page (Google search “My Payment – Canada”).
Should I pay myself dividends or a salary? Which way is better?
It’s like comparing apples to oranges, so it is hard to say which is one better without more information on your corporation and personal taxes.
When the corporation is paying dividends to you, it is considered investment income. You don’t pay into Canada Pension Plan (CPP), or Employee Insurance (EI), however dividends paid cannot be deducted and claimed as an expense from your company income. If you pay yourself a salary (T4), the salary will be deducted from your company income, and you must pay CPP.
Based on our experience, if the amount you are going to pay yourself is less than $100k, your overall tax owing (T1, T2, CPP) will be lower by paying yourself dividend than salary. But if the amount you pay yourself income is more than $100k, paying a salary on a T4 will generally be a bit better than dividends.
We must look at the whole picture – your RRSP contribution, personal situation (single / married/ dependent) and your preference of contributing into CPP. We can discuss and calculate these in detail while preparing your personal and corporation taxes.
Disclaimer: The Content of the web site is not tax or legal advice. Do not use or otherwise rely upon any of the Content without first seeking your tax or legal advice.
