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Corporation Tax In Canada – An Overview
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Canadian corporations are taxed differently than other forms of business. The most obvious tax change is that as a corporation is a legal entity in itself, the corporation is taxed separately from the individual. (As a business owner, you file both T1 (personal) and T2 (corporate) income tax forms.) But tax-wise, there are also different types of corporation, and the type of corporation determines whether or not the corporation is entitled to certain rates and deductions.
Basically in Canada, there are Canadian-controlled private corporations (CCPCs), and then there are the others. When it comes to corporate tax, Canadian-controlled private corporations (CCPCs) are the Cinderellas at the ball while other types of corporations are the ugly step-sisters.
Companies and corporations pay tax on profit income and on capital. These make up a relatively small portion of total tax revenue. Tax is paid on corporate income at the corporate level before it is distributed to individual shareholders as dividends. A tax credit is provided to individuals who receive dividend to reflect the tax paid at the corporate level. This credit does not eliminate double taxation of this income completely, however, resulting in a higher level of tax on dividend income than other types of income. (Where income is earned in the form of a capital gain, only half of the gain is included in income for tax purposes; the other half is not taxed.) Corporations may deduct the cost of capital following capital cost allowance regulations.
Starting in 2002, several large companies converted into "income trusts" in order to reduce or eliminate their income tax payments, making the trust sector the fastest-growing in Canada as of 2005. Capital tax is a tax charged on a corporation's taxable capital. Taxable capital is the amount determined under Part 1.3 of the Income Tax Act (Canada) plus accumulated other comprehensive income.
From 1932 until 1951, Canadian companies were able to file consolidated tax returns, but this was repealed with the introduction of the business loss carryover rules. In 2010, the Department of Finance launched consultations to investigate whether corporate tax on a group basis should be reintroduced.
Canadian corporation tax includes taxes on corporate income in Canada and other taxes and levies paid by corporations to the various levels of government in Canada. These include capital and insurance premium taxes; payroll levies (e.g., employment insurance, Canada Pension Plan, Quebec Pension Plan and Workers' Compensation); property taxes; and indirect taxes, such as goods and services tax (GST), and sales and excise taxes, levied on business inputs.
If you want to pay your corporation tax promptly and file the T2 return on time, you need to know the tax year end of your corporation. The fiscal period of a corporation or the corporation's tax year has to be less than 53 weeks. New corporation can choose the tax year end while filing the first T2 return and the subsequent tax year can be calculated according.
Josep Guardiola is a corporation tax specialist, who practices as an independent tax consultant. He is providing lots of information about how to manage tax. In this article you can find details information about corporate tax. For more information visit taxca.com.
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