What is T2 Corporate Income Tax Return?
The T2 is the annual corporate income tax return filed with the Canada Revenue Agency by all Canadian resident corporations and certain non-resident corporations with a taxable presence in Canada. The return is due within 6 months of the corporation's fiscal year-end. The balance of corporate tax owing is due 2 months after year-end (3 months for eligible CCPCs).
Current Rate (Corporate fiscal year (any 12-month period))
N/A (filing requirement)
Example
A CCPC with a 31 December fiscal year-end must file its T2 by 30 June and pay any remaining tax balance by 28 February (2 months for general corporations) or 31 March (3 months for eligible CCPCs claiming the SBD).
How T2 Corporate Income Tax Return works in Canada
The T2 Corporation Income Tax Return is the primary annual tax filing for all Canadian corporations. Every corporation resident in Canada must file a T2 for each taxation year, even if it has no taxable income or owes no tax.
**Due dates**
The T2 return is due within 6 months after the end of the corporation's taxation year (fiscal year-end). The balance of tax owing is due 2 months after the taxation year-end, except for eligible CCPCs (those that qualify for the SBD and are not associated with a corporation that previously paid tax at the general corporate rate), whose tax balance is due 3 months after year-end. The earlier payment deadline (2 or 3 months) compared to the filing deadline (6 months) means you need to estimate your tax liability before completing the return.
**From net income to taxable income**
Corporate tax in Canada starts with net income computed under generally accepted accounting principles (GAAP), then adds back non-deductible items and removes items deductible for tax but not book purposes. The key reconciling schedule is Schedule 1 (Net Income or Loss for Income Tax Purposes), which bridges book profit to taxable income. Common adjustments include: adding back depreciation (book), deducting Capital Cost Allowance (CCA, tax depreciation), adding back golf and 50% of meals/entertainment, and deducting SR&ED expenditures.
**Key schedules**
The T2 package includes numerous schedules. The most commonly used are: Schedule 1 (book-to-tax reconciliation), Schedule 4 (corporate losses), Schedule 6 (summary of dispositions), Schedule 7 (aggregate investment income and active business income), Schedule 8 (CCA), Schedule 200 (corporate income tax), Schedule 411 (SBD calculation for CCPCs), and the RDTOH schedule for corporations with investment income.
**Refundable dividend tax on hand (RDTOH)**
When a CCPC earns investment income (interest, rents, taxable capital gains from portfolio investments), a portion of the tax paid (38.33% of taxable dividends paid) is refundable when the corporation pays taxable dividends to shareholders. The RDTOH mechanism ensures investment income is not permanently taxed at the high corporate rate when it will eventually be distributed to individual shareholders. Two pools exist since 2019: Eligible RDTOH (triggered by eligible dividends) and Non-Eligible RDTOH (triggered by non-eligible dividends).
**EFILE and NETFILE**
Most T2 returns must be filed electronically. Corporations with gross revenues over CAD 1 million must file electronically. Electronic filing is done through CRA's T2 EFILE service using commercial tax software. Corporations with revenues below CAD 1 million may file on paper but electronic filing is strongly recommended for faster processing and acknowledgment.
Related terms
A Canadian-Controlled Private Corporation is a private corporation controlled by Canadian residents. CCPCs qualify for the 9% Small Business Deduction rate on active business income, the 35% refundable SR&ED investment tax credit, and the Lifetime Capital Gains Exemption on a qualifying share sale.
The Small Business Deduction reduces the federal corporate tax rate from 15% to 9% for Canadian-Controlled Private Corporations on the first CAD 500,000 of active business income per year. The deduction is subject to reduction for associated corporations, passive investment income, and taxable capital above CAD 10 million.
Capital Cost Allowance is Canada's tax depreciation system for business assets. Instead of deducting the full cost of a depreciable asset in the year of purchase, businesses claim CCA at prescribed rates over time. Different asset classes attract different CCA rates: Class 10 (30% declining balance for most vehicles), Class 8 (20% for office equipment), Class 14.1 (5% for goodwill and eligible capital property).
SR&ED is Canada's primary tax incentive for research and development. CCPCs receive a 35% refundable investment tax credit on the first CAD 3 million of qualified SR&ED expenditures annually. Other corporations receive a 15% non-refundable credit. Qualifying work must resolve scientific or technological uncertainty through systematic investigation.
The Canada Pension Plan is Canada's mandatory public pension scheme for employed and self-employed workers. In 2025, both employer and employee each contribute 5.95% on earnings between CAD 3,500 and CAD 71,300 (the Year's Maximum Pensionable Earnings). A second tier (CPP2) applies 4% on earnings between CAD 71,301 and CAD 81,200. Self-employed individuals pay both sides.
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