T2 – Corporate Tax Return

If you operate through a corporation, even a small one, tax filing involves more than your personal return. While your T1 reports individual income, the T2 Corporate Income Tax Return is what your corporation uses to report its business income and calculate how much tax it owes. At Optimize, we complete your T2 for you. But understanding what this form captures, and how it affects your overall plan, can help you feel more confident and informed as both a business owner and investor.

Knowing what the T2 contains can guide better decisions around how to pay yourself, when to retain earnings, and how your corporation supports your personal financial goals over time.

The Foundation of Corporate Tax Filing

The T2 form is the main document used to file income taxes for Canadian-controlled private corporations (CCPCs) and most other incorporated businesses. Unlike your T1, which is based on the calendar year, your T2 is tied to your company’s fiscal year and is generally due six months after your fiscal year-end.

Each T2 summarizes your corporation’s activities for the year and calculates how much tax is payable. It includes:

Business income: from sales, services, investments, or other sources.
Deductions: like salaries, rent, professional fees, and other expenses.
Tax credits: including small business deductions or investment tax credits.
Refund or balance owing: based on total taxes calculated minus instalments paid.

Why the T2 Matters in Your Broader Financial Plan

Even though Optimize handles your T2 filing, understanding the form helps you make smarter decisions year-round. The choices you make as a business owner — from how to pay yourself to how much income to retain — all show up here and influence both your corporate and personal financial outcomes.

Learn how to read a T2 form to better understand the details and terminology used throughout your return.

This matters when you are deciding whether to:

Draw income as salary or dividends.
Invest surplus corporate cash.
Use the small business deduction effectively.
Align your corporate and personal year-end planning.
Plan for future transitions or business sales.

For example, your T2 shows whether your corporation is accumulating retained earnings, paying down debt, or deploying income in a tax-smart way. We use that information to coordinate investment strategies, income planning, and tax optimization across your business and personal life.

Tip: Keep a copy of your T2 return and Notice of Assessment each year. They are key documents for future planning, shareholder reporting, and potential financing needs.

A Corporate Filing Reflects More Than Profit

Your T2 does more than just report income. It captures a wide range of financial decisions that shape your company’s efficiency and future potential. Depending on your business life stage, your T2 reflects different planning themes:

Early-stage business: Tracking startup costs, use of losses, and qualification for small business tax rates.
Growth phase: Managing retained earnings, paying salaries or dividends, and investing corporate capital wisely.
Exit planning: Preparing for valuation, capital gains exemptions, and share structure optimization.

Understanding your T2 allows us to evaluate how your corporation fits into your overall plan, including how to structure retirement income, fund holding companies, or use tax deferral opportunities strategically.

Learn How to Read Your T2

Understanding your T2 is more than just filing corporate taxes. It shows how your business income, expenses, and deductions shape your tax outcome. Reviewing it helps you make informed decisions about compensation, growth, and succession.

At Optimize, we believe that knowing the numbers behind your return leads to smarter planning. This article breaks down the T2 so you can approach tax season with clarity.

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.

Important: Some expenses that reduce your accounting profit are not deductible on your tax return. This can result in taxable income that is higher than net income. Understanding this helps avoid surprises when your corporate tax bill is higher than your bookkeeping might suggest.

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.

Tip: If you consistently receive a refund, it may be worth adjusting your corporate installment payments. This frees up cash during the year and improves your company’s working capital.

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.