Corporation Income Tax — Montreal CPA Firm Near You: Full Guide to T2 Filing, Corporate Tax Rates, Credits, Payments, Reassessments, and CRA Compliance

Corporations in Canada face one of the most complex tax environments in the world. Whether you operate a small private corporation, a growing SME, or a large enterprise, understanding the rules around corporate income tax is essential for compliance and long-term planning. From filing the T2 Corporation Income Tax Return to claiming credits, managing instalments, handling reassessments, and planning dividends, every step requires precision—and mistakes can be costly.

This comprehensive 4-page Mackisen CPA guide explains how corporate taxation works in Canada, how rates are determined, how federal and provincial tax systems interact, how credits apply, what records you must keep, and how CRA handles audits and reassessments. It also highlights common pitfalls and high-value planning opportunities that corporate owners often miss.

Written in a high-authority accounting and tax blogger style, optimized for strong SEO and client conversion, this guide positions Mackisen as the leading corporate tax advisor in Montreal.

Legal and Regulatory Framework

Every Canadian corporation—including inactive corporations and non-resident corporations with Canadian activities—must file a T2 Corporation Income Tax Return for each tax year, even if no tax is payable. The T2 must be filed no later than six months after the end of the tax year, with any balance owing due two months after year-end (or three months for eligible CCPCs).

Canadian corporate taxation is governed by:

• The Income Tax Act

• Provincial and territorial tax legislation

• CRA administrative policies

• Transfer pricing rules

• Foreign affiliate reporting

• Financial statement presentation (ASPE vs IFRS)

Corporations must determine:

• Taxable income

• Applicable corporate tax rates (small business vs general)

• Provincial allocation (if doing business in multiple jurisdictions)

• Federal and provincial tax credits

• Dividend account balances

Corporations also face strict record-keeping obligations, refund restrictions, reassessment timelines, and interest rules. Compliance is ongoing—not just a once-a-year filing.

Key Court Decisions Affecting Corporation Taxation

Canadian courts have consistently reinforced several principles:

1. The burden of proof is on the corporation.
   Corporations must maintain complete and accurate books and records. CRA may deny expenses that lack supporting documents.

2. Income must clearly reflect profit.
   Canderel and Ikea (SCC decisions) emphasize commercial reality: corporations must report income in a manner that reflects actual profit.

3. Transfer pricing adjustments can be applied aggressively.
   Courts uphold CRA transfer pricing reassessments when related-company transactions are not at arm’s length.

4. Dividends must be designated properly.
   Eligible and non-eligible dividends must be correctly tracked in GRIP and LRIP balances.

5. Federal vs provincial allocation is strictly enforced.
   Cases show that corporations doing business in multiple provinces must allocate income based on actual business activities, not convenience.

These decisions emphasize the need for professional corporate tax planning, documentation, and compliance.

Why CRA Targets Corporate Filings

Corporations are frequently selected for CRA review because:

• Corporate returns often involve large amounts

• Many corporations underpay instalments

• GST/QST and payroll issues often overlap

• Dividends, shareholder loans, and intercompany transactions are high audit risks

• Small businesses often lack adequate records

• Transfer pricing non-compliance is common in multinational groups

• CRA actively reviews CCPCs claiming small business deductions

Businesses with rapid growth, losses, shareholder loans, or large refunds also draw CRA’s attention.

Mackisen helps corporations stay audit-ready and compliant.

Mackisen Strategy

Mackisen CPA Montreal provides comprehensive corporate tax services:

• Preparing T2 returns and provincial schedules

• Determining corporate tax rates (small business vs general)

• Planning and tracking eligible vs non-eligible dividends

• Preparing GRIP, LRIP, CDA, RDTOH, and other tax account schedules

• Corporate reorganizations and tax planning

• CRA audit defence and filing notices of objection

• Managing transfer pricing documentation

• Overseeing corporate instalments and payment plans

• Filing adjustments and handling reassessments

• Cross-border planning for non-resident corporations

• Corporate year-end financial statement preparation

Our strategy ensures full compliance while optimizing tax savings and protecting the corporation from CRA risk.

Real Client Experience

A Quebec CCPC claimed the small business deduction (SBD) incorrectly after expanding to another province. CRA reassessed them at the general rate. Mackisen restructured their provincial allocation and recovered overpaid tax.

A manufacturing company received a CRA review for intercompany transfer pricing. We created proper documentation, supported the pricing policy, and prevented a six-figure adjustment.

A family-owned corporation paid excessive bonuses at year-end. Mackisen redesigned their compensation strategy, saving tens of thousands in taxes annually and strengthening documentation.

A corporation missed three instalment deadlines, triggering penalties. We negotiated a payment plan, filed relief requests, and implemented PAD withdrawals to avoid future penalties.

Corporation Income Tax Overview

Corporation tax is based on:

• Net income for tax purposes

• Adjustments for non-deductible expenses

• Provincial allocation

• Federal and provincial tax rates

In addition to federal tax, corporations pay provincial or territorial tax based on where they conduct business.

Corporate Tax Rates: Federal and Provincial

Corporations pay:

• General corporate rate: approximately 38% federal, reduced to 15% after credits

• Small business rate (for CCPCs): approximately 9% federal

Provincial rates vary:

• Quebec: 3.2% small business rate, higher for non-manufacturing

• Ontario: 3.2% small business rate

• British Columbia: 2%

• Alberta: 2% small business rate

Provincial rates apply in addition to federal rates.

Corporations must determine whether they qualify for:

• Small business deduction

• Associated corporation rules

• Passive income limits

• TOSI implications

Incorrectly claiming the SBD is a major audit trigger.

Provincial and Territorial Corporate Tax

Corporations operating in multiple provinces must allocate taxable income based on:

• Payroll

• Revenue

• Location of permanent establishments

Provincial credits (SR&ED, e-business, manufacturing) can significantly reduce tax.

Corporations with Quebec operations must file:

• Federal T2

• Quebec CO-17

• Additional Quebec schedules

Mackisen prepares both seamlessly.

Federal Tax Credits

Corporations may claim credits including:

• SR&ED Scientific Research & Experimental Development

• Investment tax credits

• Apprenticeship credits

• Digital credits

• Zero-emission incentives

• Film and media credits

Credits require detailed documentation and audit support.

Record Keeping

Corporations must keep complete records of:

• Sales and purchases

• Payroll

• GST/QST filings

• Capital assets

• Shareholder loans

• Minutes and resolutions

• Dividend designations

• Agreements with related parties

Records must be kept for six years.

Poor records lead to denied deductions and reassessments.

Dividends

Corporations can pay:

• Eligible dividends (lower personal tax rate)

• Non-eligible dividends

Correct tracking of:

• GRIP (general rate income pool)

• LRIP (low-rate income pool)

• CDA (capital dividend account)

• RDTOH (refundable dividend tax on hand)

is essential to avoid Part III.1 tax.

Mackisen assists with dividend planning and compliance.

Corporate Tax Payments

Corporations must:

• Pay tax instalments quarterly or monthly

• Pay balance owing by the due date

• Use the correct CRA payee

Corporate instalment penalties are severe. Small business owners often rely on Mackisen to automate and plan instalments to avoid penalties.

Reassessments

CRA can reassess returns:

• Within 3 years for CCPCs

• Within 4 years for most corporations

• Beyond these limits if there was misrepresentation or neglect

Corporations may:

• Request a reassessment

• File a Notice of Objection

• Negotiate payment plans

Mackisen defends corporations in audits and reassessments.

Transfer Pricing

Corporations with foreign affiliates must follow:

• Arm’s length pricing

• Documentation requirements

• Transfer pricing memoranda

CRA aggressively audits cross-border transactions. Penalties apply when documentation is missing.

Foreign Spin-Offs

Corporations undergoing foreign spin-offs must comply with CRA rules for Canadian shareholders. Incorrect reporting can trigger capital gains or foreign reporting penalties.

Why Mackisen

With more than 35 years of combined CPA experience, Mackisen CPA Montreal is the trusted advisor for corporate tax planning, filing, and compliance. We assist with every aspect of the corporate tax lifecycle—from incorporation to year-end, from corporate reorganizations to CRA disputes.

Whether you’re filing your T2 return, planning dividends, navigating multi-province operations, or facing CRA review, our expert team ensures accuracy, compliance, and tax efficiency.