Filing T2 corporate income tax returns in Toronto—or anywhere else in Canada—can be a complicated and detail-driven process. Every year, countless businesses face penalties, audits, or processing delays simply because of avoidable errors in their T2 filings. Whether you’re a new entrepreneur or an experienced business owner, understanding what not to do is just as important as knowing what to do.
Below, we break down some of the most common mistakes to avoid when preparing and filing your T2 return, helping you steer clear of unnecessary headaches and ensuring compliance with the Canada Revenue Agency (CRA).
1. Failing to File on Time
One of the most common and costly mistakes is missing the deadline to file your T2 return. All corporations in Canada, including inactive ones, must file a T2 return annually within six months of the end of their fiscal year.
- Late filing leads to penalties starting at 5% of the unpaid tax, plus 1% for each full month the return is late, for up to 12 months.
- Filing late—even if no tax is owed—can trigger audits or raise red flags with the CRA.
Tip: Set calendar reminders and start preparing early, especially if you require the help of an accountant or bookkeeper.
2. Incorrect Business Information
It sounds obvious, but many corporations submit returns with incorrect or outdated business details, such as:
- Wrong Business Number (BN)
- Incorrect fiscal period dates
- Outdated or mismatched legal names and addresses
These errors may cause delays in return processing or miscommunication with the CRA. Make sure your return reflects your current corporate status accurately.
3. Poor Record Keeping
Toronto businesses often struggle with maintaining proper records throughout the year, which becomes a major issue at tax time. Insufficient documentation can result in missed deductions or errors in revenue reporting.
What you should do:
- Organize receipts, invoices, and banking records throughout the year
- Invest in accounting software like QuickBooks or Xero to streamline record keeping
- Keep both physical and digital backups of all documents
4. Misreporting Revenue and Expenses
Incorrectly categorizing or overstating business expenses is a frequent mistake that can trigger audits. Similarly, underreporting revenue—even accidentally—can lead to severe penalties.
Watch out particularly for:
- Mixing personal and corporate expenses
- Overclaimed meals, travel, or home office deductions
- Failure to report government assistance (like COVID-19 subsidies)
Best practice: Collaborate with a professional accountant to ensure expense claims are within CRA guidelines and supported by proper documentation.
5. Neglecting Tax Credits and Deductions
Many small and medium-sized businesses in Toronto miss out on valuable tax credits simply by not exploring what’s available. Some overlooked benefits include:
- Scientific Research and Experimental Development (SR&ED) tax credits
- Ontario innovation tax credits
- Capital cost allowance (CCA) deductions
To fully benefit from eligible credits, your business must meet certain criteria and complete the related forms accurately. An experienced tax advisor can guide you through the application process.
6. Using the Wrong T2 Schedules
The T2 return isn’t a one-size-fits-all document. Depending on your corporate activities, industry, and financial details, you may be required to fill out specific schedules.
Some commonly overlooked schedules include:
- Schedule 1 – Net income for income tax purposes
- Schedule 4 – Corporation Loss Continuity and Application
- Schedule 8 – Capital Cost Allowance
Omitting necessary schedules can lead to an incomplete filing, which may then be rejected or delayed by the CRA.
7. DIY Errors and Lack of Professional Help
While many entrepreneurs try to save money by preparing their T2 returns themselves, this can be a risky strategy without a solid accounting background. Frequent errors by DIY filers include missed deadlines, incorrect tax calculations, and improperly filed supporting documents.
Hiring a corporate tax professional may seem like an added expense, but it often saves businesses far more in missed opportunities, penalties, and stress.
Conclusion
Filing your T2 return accurately and on time is crucial for your business’s financial health and legal compliance. Avoiding these common mistakes not only minimizes risk but also strengthens your credibility with tax authorities. Whether your corporation is just starting or well-established, investing in professional assistance and staying diligent throughout the year can make all the difference at tax time.
Don’t let your T2 return become a source of stress—proactive efforts can result in smoother filings and greater peace of mind.
