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Taxation of Corporations Careful planning with a Chartered Accountant is warranted. Contact Keith Anderson CA at (780) 447-5830 if you need advice. A corporation must file a corporation income tax return (T2) within six months of the end of every taxation year, even if it doesn't owe taxes. It also has to attach complete financial statements and the necessary schedules to the T2 return. A corporation pays its taxes in monthly instalments. For GST/HST, corporations have reporting periods for which a return has to be filed. The taxation year for a corporation is its fiscal period which can be any day during the year which is not more than 52 weeks after incorporation. Click HERE for the tax rates for Corporations in Alberta. To remove funds from the corporation, you must follow proper accounting procedures or face serious consequences. Salaries and dividends received by you from the corporation will be taxed. Loans made by the company to you must be repaid within strict time frames and will attract a taxable interest benefit. For tax purposes, the corporation’s business and investment income will be calculated in much the same way as your own. As with individuals, certain deductions (such as loss carry forwards) are available in computing taxable income. The corporation then pays federal tax and provincial tax on its taxable income. Types of Corporations Public corporations – a public corporation is a corporation that is resident in Canada and has its shares traded on a prescribed stock exchange in Canada. Private Corporations –a private corporation is any corporation that does not fall within the definition of public corporation and is not controlled by a public corporation. Canadian Controlled Private Corporations – a Canadian controlled Private company (CCPC) is any corporation that is not controlled, directly or indirectly, by one or more non-resident individuals. Types of income Active Business Income Active business income involves "doing something" to produce income other than income from property, a specified investment business or a personal services business. Property Income Property income is earned with "little or no effort" on the part of the recipient (e.g., interest earned on a term deposit) Specified Investment Business Income Specified investment businesses are excluded from the definition of active business, it means that property income generated by such businesses is not eligible for the small business deduction. This means that corporations that are primarily engaged in earning property income, only those with more than firm full-time employees involved in earning such income are considered active businesses and are eligible for the small business deduction. Dividend Income Dividends received from a company where the recipient corporation owns more than 10% of the outstanding voting shares and more than 10% of the total market value of all shares are not taxed. However, if the company owns 10% or less of the payor company it is required to pay a refundable tax of 33.33 % (Part IV Tax). Refundable Dividend Tax on Hand (RDTOH) A company, in receipt of inactive business income and certain dividend income, noted above, is required to pay a refundable tax. The company can recover this refundable tax. The company can recover this refundable tax by paying a taxable dividend to its shareholders. For each $3 of taxable dividend paid, the company will recover $1 of refundable tax.
Careful planning with a Chartered Accountant is warranted. Contact Keith Anderson CA at (780) 447-5830 if you need advice.
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