Ask a room full of incorporated business owners when their corporate tax is due and most will say six months after year-end, the T2 filing date. They’re half right. The T2 payment deadline usually lands three or four months before that, and the CRA starts charging interest from that earlier date whether the return is in or not. It catches small corporations year after year, and it really doesn’t have to.
Here are both deadlines, why they don’t match, and a plan for keeping interest and penalties from nibbling at your profit.
The Filing Deadline: Six Months After Year-End
You get six months after the tax year closes to file the T2. When the year ends on a month’s last day, count forward six months and the return is due on the last day of that month. December 31 year-end? You’ve got until June 30.
No tax owing? You still file. That goes for inactive corporations and companies that lost money, too. Weekend or holiday due date? Relax a little. As long as the CRA gets the return by the next business day, it’s on time.
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The Payment Deadline: Two or Three Months After Year-End
The balance of tax owing (whatever’s left after instalments) is due well before the return. The CRA calls this date the balance-due day.
- Most corporations have two months after year-end to pay the balance.
- Certain Canadian-controlled private corporations (CCPCs) get three months. The test, roughly: the corporation claimed the small business deduction this year or last, and last year its taxable income (counting associated corporations) didn’t go over the business limit.
Back to our December 31 example. A qualifying CCPC has to pay by March 31; any other corporation, by the end of February. In both cases the money is due months ahead of the June 30 filing date.
Why the Gap Catches People Out
The CRA’s thinking is that corporations should estimate their tax, pay it promptly, and then confirm the number when the return goes in. Real life doesn’t always cooperate. Lots of owners don’t get started on year-end until spring, so by the time the accountant has worked out the final tax, the payment date is already behind them.
Interest starts the day after the balance-due day, at the CRA’s prescribed rate for overdue amounts, compounded daily. On a modest balance a few months of it might not look like much. But it adds up, you can’t deduct it for tax purposes, and none of it had to happen.
Late Filing Penalties Are Based on Unpaid Tax
Miss the filing deadline and the CRA takes 5% of whatever tax was still unpaid on that date. Then it adds 1% of that unpaid amount per full month late, capped at 12 months. Repeat offenders pay more. Had a late-filing penalty in any of the past three years, plus a CRA demand to file? Then the numbers double: 10% of the unpaid tax and 2% for each full month, up to 20 months.
Look at what that penalty is based on: unpaid tax. If the estimated balance went in on time, there’s hardly any unpaid tax by the filing deadline, and the penalty on a late return shrinks to match. That’s the case for thinking of the payment date as your real deadline. The filing date is for paperwork.
How Instalments Fit In
Once total tax payable goes past $3,000 in either the current or the previous year, instalments during the year are generally required, and for most corporations that means monthly. Some small CCPCs with a good compliance record are allowed to pay quarterly. Instalments shrink what’s owing at year-end, but the balance-due day doesn’t go away. Anything still unpaid after instalments is due two or three months after year-end, same as before.
Pay instalments late, or pay too little, and you’ll be charged instalment interest. If that interest gets big enough, an extra instalment penalty can kick in on top. Accurate instalments plus a final payment made on time is how you keep the interest bill near zero.
A Practical Timeline for a December 31 Year-End
- January: Books get closed. Bank, credit card and loan accounts get reconciled, every one of them.
- Early February: Year-end records are in your accountant’s hands, or your own working papers are done.
- Mid-to-late February: With the numbers nearly final, work out a tax estimate.
- By February 28 or March 31: Pay the estimated balance. The date depends on whether you qualify for three months or only two.
- April to June: Statements finalized, T2 prepared and reviewed, return filed before June 30 hits.
Estimate a bit low and the interest only runs on the gap, which should be small. Overpaid? You’ll get the difference back, or the CRA will apply it to future instalments.
Common Mistakes to Avoid
- Assuming the filing date is the payment date. This is the big one, and it’s behind most of the interest charges owners end up paying.
- Assuming you get three months when you don’t. The three-month rule comes with conditions. If last year’s taxable income was over the business limit, or the small business deduction wasn’t claimed, you’re on the two-month deadline.
- Paying at the last minute. Online payments can take a few business days to go through. Pay early enough that the CRA actually has the money by the due date.
- Ignoring a changed year-end. A short first year, or a change in fiscal period, moves every deadline. Work them out again instead of reusing last year’s dates.
If you use corporate tax filing services in Toronto or elsewhere, ask your accountant straight out which deadline applies to your corporation and when you’ll have a payment estimate. A good provider plans the year-end work around the payment date, not only the filing date.
What to Do If You’ve Already Missed the Payment Date
Pay the estimated balance as soon as you can, even if the return isn’t ready yet. Interest stops building on whatever you’ve paid. Then get the return filed by the filing deadline. Can’t pay it all? File on time anyway, so a late-filing penalty doesn’t land on top of the interest. If hardship or circumstances outside your control caused the problem, the CRA’s taxpayer relief provisions may let some interest or penalties be cancelled. Relief isn’t automatic, though.
Conclusion
A T2 comes with two deadlines, and for your bank balance the earlier one matters more. Six months to file; two or three to pay, with interest from the day after. Build the year-end schedule around the payment date, get an estimate done early, pay on time, and the filing deadline stops being a financial risk. It’s just paperwork at that point.
Frequently Asked Questions
When is my corporation’s tax payment due?
Usually two months after the tax year ends. CCPCs that meet the small business deduction and taxable income conditions get three.
Can I pay my corporate tax when I file the return?
You can. But if you file after the balance-due day, interest on the unpaid amount will have been running since the day after that date.
Is there a penalty if my T2 is late but I’ve already paid the tax?
The late-filing penalty is calculated on tax unpaid at the filing deadline. If everything was paid on time, the penalty is generally nil. You still have to file, though.
Are interest charges on late corporate tax deductible?
No. CRA interest and penalties on late tax can’t be deducted when working out the corporation’s income.
What if my filing deadline falls on a weekend?
It’s treated as filed on time if the CRA receives it by the next business day.
