“The due date of corporate taxes depends on many factors.”
There is a misconception about when corporate taxes are due. For all corporations, taxes are due two months after the day on which the taxation year ends. There is an exception allowing a corporation to pay its taxes three months after the year-end if it meets all three conditions listed below:
- An amount was deducted as a small business deduction under section 125 for the current year or its preceding taxation year;
- The corporation, throughout the current year, is a Canadian-controlled private corporation; and
- The taxable income of the corporation for the preceding taxation year does not exceed its business limit for that year. Where corporations are associated, the total taxable income of the associated corporations cannot exceed the total business limits of all the corporations.
Many accountants believe that the only requirement is that the company either be a CCPC or be eligible to claim the small business deduction. The reality is that the small business deduction must actually be claimed in the year in question or the preceding year. Even if the small business deduction is claimed, the corporation’s taxable income for the preceding taxation year cannot exceed the small business limit.
This could be a significant issue if the proposed reduced dividend tax rates become law. If the tax rate on dividends is reduced, it will become more attractive to leave all the income in the corporation since there will still be integration on the high rate income. In that case, however, the corporation cannot pay its corporate tax three months after the year-end, but must pay two months after the year-end.
Accountants and tax practitioners should not assume that an active company may pay its corporate taxes two months after the year-end. A careful review of these rules is essential.
TAX TIP OF THE WEEK is provided as a free service to clients and friends of the Tax Specialist Group member firms. The Tax Specialist Group is a national affiliation of firms who specialize in providing tax consulting services to other professionals, businesses and high net worth individuals on Canadian and international tax matters and tax disputes.
The material provided in Tax Tip of the Week is believed to be accurate and reliable as of the date it is written. Tax laws are complex and are subject to frequent change. Professional advice should always be sought before implementing any tax planning arrangements. Neither the Tax Specialist Group nor any member firm can accept any liability for the tax consequences that may result from acting based on the contents hereof.