If you own a company in Canada, you must file corporation tax or a T2 tax return each year. Depending on your industry, structure and income, your T2 tax return will look very different than any other company.
But what if your income this year was zero? Are you still required to file zero or no returns with the CRA?
Some companies, such as start-ups and new SMEs, may operate for years before becoming profitable. Other businesses are registered in the commercial register legally, but will not start commercial operations until years later. It is more common than you might think for a corporation in Canada to have zero income.
However, the CRA (Canada Revenue Agency) still expects a tax return to be filed by a company with zero income. This does not have to be a full T2 tax return and there is an abbreviated CRA T2 form for companies that wish to file a zero return.
Here you will find everything you need to know about the invalidity of tax returns.
What is zero-return?
A zero-tax return, also known as a nil tax return, refers to a corporate tax return that shows no income during the tax year. This is usually because the business is not working or making a loss for various reasons. A nil tax return for a company can be completed using the T2 short form.
Who has to file a zero-tax return for the company?
A Canadian corporation must file a corporate income tax return every year. If your company has zero income or loss, it must file a zero-tax return for each year it has that loss or no income.
This applies to resident companies. Non-resident companies must file a zero-tax return if:
- carried out activities in Canada
- had a taxable capital gain
- gave up Canadian taxable estates
- If, after any of these situations arise, the non-resident company has zero income or loss, it must file a zero-tax return.
How to submit a zero return
The best way to file an invalid tax return in Canada is to work with a corporate tax accountant. They can ensure that your T2 nil return is filed correctly with all relevant information and on time. In many situations, a company that needs to file a zero T2 return can do so using the T2 short form. This is a short two-page tax return created by the CRA for companies with zero income to file.
Both T2 and T2 abbreviations can be found on the CRA website, completed, printed and attached with the appropriate schedule for your company. When filing a nil return, it is imperative that all your information is accurate and confirms that you had zero income or were trading at a loss.
Are you eligible to use the CRA T2 Short Form?
The CRA T2 short form was created to make it easier for eligible companies to file corporate income tax returns that do not need to provide a large amount of financial data to the CRA. Not all companies can use the shortened T2 form even if they have zero tax returns in Canada. To use the short form, a company must be: A Canadian controlled private company (CCPC) for the entire tax year and operating with zero net income or loss for corporate income tax returns purposes that year. A company exempt from tax according to § 149 (e.g. non-profit organization).
In addition, a company must meet all of the following conditions to use the T2 abbreviation:
- has a permanent establishment in only one province or territory
- does not apply for a refundable tax credit (except for the refund of paid installments)
- did not receive or pay taxable dividends
- does not have an Ontario pass-through tax debt
- does not have the amount calculated according to point 34.2
If your business meets these criteria, you can use a short T2 to file a zero-tax return.
What is the deadline for submitting a zero declaration to the CRA?
The deadline for submitting your company’s null declaration to the CRA is within six months of the end of each tax year. Your company’s fiscal year is its fiscal period. If the company’s tax period ends on the last day of the month, the return is due by the last day of the sixth month following the end of the tax year.
If the company’s tax year does not end on the last day of the month, file the return by the same day of the sixth month following the end of the tax year. The fiscal year ending March 31 will have a September 30 filing deadline. The tax year ending September 15 will have a filing deadline of March 15.
Frequently asked questions
Here you will find all the answers to your zero tax return questions.
What are the costs of filing a zero tax return?
The fees associated with filing a null return for a company are significantly lower than for a full T2. Rates will depend on your particular business, including whether you have zero income or losses, where you operate, and how many programs, if any, are required.
Is there a penalty for failing to file a zero tax return in Canada?
In the event of a zero tax return, there would be no tax due and therefore no direct penalties for your company for missing the deadline. However, this late filing, even with a zero tax return, can have unintended consequences and flag your CRA business records in the future. It is always recommended to file a zero tax return by the deadline.
Do I need to file a null return for the business even if they don’t have a bank account or assets?
YES. Even a company that has only been registered and owns nothing else has to file zero returns.
How long do I have to file a zero tax return?
You have six months after the end of your company’s tax year to file corporation tax or a zero tax return with the CRA.
Should I write CRA T2 schedule 100 and 125 in my T2 short?
Schedule 100 and Schedule 125 are required for the T2 brief filing, along with Schedule 145. Schedule 100, Information on the Financial Statements, shows the company’s financial position at the end of the fiscal year. Schedule 125, Income statement information, showing the company’s income and expenses for the year (reported as “no income” and “no expense” for zero income).
File your corporate zero tax return with a CPA
Even when filing a zero tax return, a company can have many obligations to the CRA and must fill out the correct forms. Without professional preparation and filing a zero business tax return, you expose your business to the consequences of missed deadlines, large fines and interest payments.
If you need an expert to file corporation tax, talk to us.