Learn how to Read a T2 Form

Understanding your T2 isn’t just about filing corporate tax paperwork. It’s about discovering how your business income, expenses, and deductions interact to shape your final tax outcome. By reading through each section with care, you gain insight into your company’s performance, spot areas for improvement, and make better-informed decisions about compensation, reinvestment, or succession. Whether you’re deciding how to pay yourself, planning to grow your business, or preparing to wind it down, knowing how to read your T2 gives you a clearer view of the road ahead.

At Optimize, we believe that when you understand the numbers behind your corporate return, you're empowered to make stronger, more strategic financial choices. This article breaks down the T2 into clear sections and commonly used lines so you can approach tax season with clarity, not confusion.

Identification and Basic Information

Think of this section as your corporation’s introduction. It tells the Canada Revenue Agency (CRA) who your business is and what kind of entity they’re dealing with.

Business number and tax year
This confirms your company’s official CRA identifier and the fiscal year being reported.

Legal name and address of the corporation
Used by CRA to match the return with the correct entity and send all communication.

Type of corporation
Determines eligibility for key deductions like the Small Business Deduction. Most Optimize clients will file as a Canadian-controlled private corporation (CCPC).

Language of correspondence
You can select English or French for future CRA notices, assessments, and letters.

Total Revenue and Net Income (Schedule 125)

This section outlines your business’s revenues and expenses to calculate net income — the foundation for your corporate tax return. It’s like preparing the ingredients before you start adjusting for tax purposes. Some of the most common lines include:

• Line 8299 – Total revenue
  All income earned by your business during the year from sales, services, or other sources.
• Line 8518 – Cost of goods sold
  Direct costs related to products or services sold, such as materials or subcontracted work.
• Line 8290 – Gross profit
  Revenue minus cost of goods sold. This shows how much you made from core operations.
• Line 9368 – Salaries and wages
  What you paid employees, including your own salary if paid through payroll.
• Line 9275 – Delivery, freight, and express
  Shipping costs associated with moving products or materials.
• Line 8760 – Advertising and promotion
  Marketing and promotional costs that support business development.
• Line 9999 – Net income before taxes
  Your bottom line before tax adjustments. This is what your accounting records show as profit.

Tax Adjustments and Taxable Income (Schedule 1)

Now that you’ve calculated accounting profit, this section adjusts that number to reflect what is taxable under CRA rules — which can differ from accounting logic.

• Line 101 – Net income (loss) per financial statements
  This number carries over from Schedule 125 as your starting point.
• Line 104 – Add back non-deductible expenses
  Certain business expenses are not deductible for tax purposes. This includes 50 percent of meals and entertainment, club memberships, or charitable donations.
• Line 106 – Subtract allowable reserves
  In some cases, CRA allows you to deduct reserves for doubtful accounts or future expenses.
• Line 108 – Capital cost allowance (CCA)
  Tax version of depreciation. Lets you deduct a portion of asset costs over time.
• Line 118 – Taxable income
  After all adjustments, this is the income CRA will actually tax.

Federal and Provincial Tax (Schedule 200)

This section determines how much tax your corporation owes, after applying eligible deductions.

• Line 5520 – Federal tax before deductions
  This is the basic federal tax calculated on your taxable income before credits or small business deductions.
• Line 5506 – Small Business Deduction (SBD)
  Available to CCPCs on up to $500,000 of active business income. Reduces the effective tax rate significantly.
• Line 700 – Total federal tax payable
  Federal tax after any deductions have been applied.
• Line 760 – Total provincial or territorial tax
  Calculated using your province’s rates and applicable credits.
• Line 770 – Total tax payable
  Combined federal and provincial tax before accounting for any payments made during the year.
• Line 784 – Tax installments paid
  The total of any quarterly payments your business made throughout the year.
• Line 998 – Balance due or refund
  The final result. If you overpaid, you get a refund. If you underpaid, this is what you owe.

Balance Sheet Information (Schedule 100)

This section offers a snapshot of your business’s financial position — what it owns, owes, and retains. It’s a useful planning tool for growth, compensation, or future transition.

• Line 1000 – Cash and deposits
  Cash on hand or in bank accounts at year-end.
• Line 1060 – Accounts receivable
  Unpaid customer invoices — money owed to your business.
• Line 1300 – Capital assets
  Business property such as equipment or vehicles, reported at depreciated value.
• Line 2620 – Accounts payable
  Money your business still owes to vendors or service providers.
• Line 2800 – Shareholder loans payable
  Amounts the business owes to you or other shareholders. This is an important lever for tax-efficient withdrawals.
• Line 3600 – Retained earnings
  Cumulative profit that has stayed in the company rather than being paid out. A key measure of business value and growth potential.

How Optimize Uses Your T2

Reading your T2 is not just a tax exercise. It is a planning opportunity. At Optimize, we use your T2 to:

Understand how your business generates and allocates income
This helps guide whether you pay yourself via salary, dividends, or shareholder loans.

• We help reduce overall taxes by aligning your company’s structure with your long-term personal goals.
• By reviewing capital assets and CCA, we identify opportunities to reduce future taxable income.
• Retained earnings and shareholder loans help determine when and how to take money out tax-efficiently.
• Your T2 helps assess the business’s value and plan for transitions, whether you're passing it on or exiting.