Filing a corporate tax return in Canada is a legal obligation for any incorporated business, whether you’re profitable or not. However, many Canadian corporations—especially small and medium-sized businesses—make common filing mistakes that can lead to costly penalties, CRA audits, and lost tax savings.
If you’re running a corporation in Canada, it’s crucial to approach tax season with more than just compliance in mind. Done right, your corporate tax return can serve as a powerful tool for financial strategy, planning, and growth.
In this article, we’ll explore the most common corporate tax filing mistakes in Canada, how to avoid them, and what steps you can take to stay compliant while maximizing your tax advantages.
The Basics: What Is a Corporate Tax Return?
All Canadian corporations must file a T2 Corporation Income Tax Return for every tax year, regardless of income or whether the corporation is active. This includes:
- Canadian-controlled private corporations (CCPCs)
- Public corporations
- Non-resident corporations carrying on business in Canada
The T2 return is due six months after the end of the corporation’s fiscal year, and any taxes owed are usually due within two or three months, depending on the type of corporation.
Mistake #1: Missing Filing or Payment Deadlines
The most common and costly mistake businesses make is missing deadlines. Even if your corporation owes no taxes, failure to file your T2 return on time can result in penalties.
Penalties for late filing include
- $25 per day, up to a maximum of $2,500
- Additional penalties if your corporation has gross revenues over $100,000 and is late more than once
Additionally, interest accrues daily on any unpaid taxes, which can quickly add up.
How to avoid it
- Know your corporation’s fiscal year-end and mark deadlines in your calendar.
- Set up email reminders that notifies you in advance.
- If you’re not ready to file, request an extension by filing Form T2 Schedule 89, though note that this doesn’t extend your payment deadline.
Mistake #2: Incomplete or Disorganized Records
Accurate record-keeping is the foundation of proper tax filing. Yet, many small corporations fail to maintain organized documentation of income, expenses, payroll, and business transactions.
This often results in:
- Inaccurate tax returns
- Missed deductions
- Higher accountant fees
- Red flags during CRA reviews or audits
How to avoid it
- Keep all invoices, receipts, bank statements, and payroll records for at least six years, as required by the CRA.
- Work with a bookkeeper or accounting professional to stay organized year-round.
Mistake #3: Overlooking Eligible Deductions and Credits
Many corporations leave money on the table by not claiming all the deductions and tax credits they’re entitled to.
Commonly missed deductions
- Home office expenses (if applicable)
- Depreciation on assets (Capital Cost Allowance)
- Professional fees (legal, consulting, accounting)
- Vehicle and travel expenses (business-related)
- Marketing and advertising costs
Tax credits often missed
- Scientific Research and Experimental Development (SR&ED)
- Apprenticeship Job Creation Tax Credit
- Provincial investment credits
How to avoid it
- Keep detailed records and categorize all business expenses properly.
- Consult a tax professional who understands your industry and can help identify available credits.
- Use Schedule 1 on the T2 return to adjust accounting income and claim deductions.
Mistake #4: Misclassifying Expenses or Assets
Confusing capital expenditures with regular business expenses is another costly error. For example, buying a computer is a capital asset, not a deductible expense for that year—it must be depreciated over time using Capital Cost Allowance (CCA).
Misclassifications can:
- Inflate current-year expenses
- Trigger CRA reassessments
- Delay processing of returns or refunds
How to avoid it
- Learn the difference between capital and operating expenses.
- Use the correct CCA classes (e.g., Class 8 for furniture, Class 10 for vehicles).
- Get a CPA to review your books before filing.
Mistake #5: Filing the Wrong Forms or Omitting Schedules
Filing a corporate return involves more than just the T2 form. Depending on your business activities, you may need to complete additional schedules such as:
- Schedule 50 – Shareholder Information
- Schedule 100 – Balance Sheet
- Schedule 125 – Income Statement
- Schedule 8 – Capital Cost Allowance
- Schedule 4 – Corporation Loss Continuity
Missing or incorrectly filled schedules can lead to processing delays or penalties.
How to avoid it
- Use certified tax software that prompts for required forms based on your entries.
- Work with a licensed CPA or tax advisor familiar with Canadian corporate returns.
- Double-check that all necessary supporting schedules are included before submitting.
Mistake #6: Failing to Plan for Tax Payments
Many corporations wait until tax time to figure out how much they owe, often leading to cash flow issues or penalties for underpayment.
How to avoid it
- Review your profit and loss quarterly and estimate your tax liability in advance.
- Set aside funds in a separate account for tax obligations.
- Consider making quarterly installment payments if required by the CRA.
Final Thoughts: Make Tax Season Work for You
Filing a corporation tax return in Canada doesn’t have to be stressful or costly. By avoiding common mistakes—like missing deadlines, disorganized records, or overlooking deductions—you not only stay compliant with CRA rules, but also set your business up for stronger financial outcomes.
Remember, the goal isn’t just to file—it’s to file smart. Partner with GSA Financial Consulting Ltd, a brampton based accounting firm, keep your books in order year-round, and view tax time as a strategic opportunity, not just an annual obligation.