Year-End Checklist for a Canadian Corporation Before the T2

When are the T2 and the tax due after a corporation's year-end?

A Canadian corporation must file its T2 within six months after the tax year ends, and the balance of income tax is due sooner: 2 months after year-end, or 3 months for a Canadian-controlled private corporation (CCPC) that meets the CRA's conditions. The T2, tax and annual GST/HST dates count from the fiscal year-end, not December 31; T4 and T5 slips follow the calendar year (CRA: when to file; CRA: balance-due day).

A due date that falls on a Saturday, Sunday or CRA-recognized public holiday moves to the next business day (CRA: public holidays). The tax is due before the T2, so the books need an estimate of the year's tax early; interest runs on tax still unpaid after the balance-due day (Income Tax Act, section 161).

The case is not simple when:

• The year-end has passed and the shareholder loan, payroll or GST/HST totals do not match the CRA's records. An unexplained difference, or a shareholder loan that may not be cleared in time, needs review before the T2 is prepared. Unremitted payroll deductions or GST/HST can also make a director personally liable.
• The three-month date is in doubt. The corporation must be a CCPC throughout the year and must have claimed the small business deduction in the current or previous year. Its previous-year taxable income must not exceed its business limit, the yearly cap on income eligible for that deduction; for associated corporations, their combined taxable income for their last tax years ending in the previous calendar year must not exceed their combined business limits.
• The T2 is late. The usual penalty is 5% of the tax unpaid at the due date, plus 1% for each full month late, up to 12 months. A higher penalty applies if the CRA demanded the return and a late-filing penalty was payable for any of the three preceding years (CRA: T2 guide; section 162). See penalties, interest and relief.
• It is the first year-end. The first tax year can run up to 53 weeks, and the year-end the first T2 declares carries forward.
• The corporation is in Quebec or Alberta, which have their own corporate returns.

The steps, in order:

1. Tie each account to a statement dated the year-end.
2. Clear or document the shareholder loan.
3. Record dividends and owner pay.
4. Match payroll to the T4 Summary.
5. Match GST/HST to the returns filed.
6. Make the year-end entries: bills, prepaids, bonuses, assets, inventory, customer deposits, bad debts.
7. Record the instalments paid.

Gather the year-end date, last year's T2 and notice of assessment, the CRA's payroll, GST/HST and instalment statements, and the shareholder loan schedule.

Do I file a T2 at the first year-end, or if the corporation earned nothing?

Yes. The CRA requires every corporation, including an inactive one, to file a T2 for every tax year even when no tax is payable. It lists three exceptions: tax-exempt Crown corporations, Hutterite colonies and corporations that were registered charities throughout the year (CRA: who files a T2).

A new corporation's first tax year starts on the date of incorporation and cannot be longer than 53 weeks (371 days). The first T2 declares the year-end, and it carries forward unless the CRA approves a change; a few events, such as an acquisition of control, change it without approval (see deemed year-end on acquisition of control; CRA: tax year). A corporation with no sales still has share capital, and often a shareholder loan, on its balance sheet: see the nil return guide. If earlier years were never filed, see a dormant corporation that never filed.

Which accounts do I reconcile to the year-end date?

Reconcile every balance sheet account to an outside document dated the fiscal year-end, not the calendar month-end. The Income Tax Act requires records and books of account that let the taxes payable be determined (section 230); statements and returns are the proof.

A difference that cannot be explained is a question for the accountant, not an entry to plug. If months of reconciliations are missing, see catching up on overdue books.

What do I do about the shareholder loan balance at year-end?

Find out which way the balance runs. Subsection 15(2) of the Income Tax Act concerns money a shareholder, or someone connected with one, owes the corporation; a borrower that is itself a corporation resident in Canada is outside it. That amount is included in the person's income for the year the loan was received, unless the loan is repaid no later than one year after the end of the corporation's tax year in which the loan was made and the repayment was not part of a series of loans or other transactions and repayments (section 15). If the corporation owes the shareholder instead (the owner paid costs personally or put money in), section 15(2) does not apply to that balance; keep the same dated ledger.

Other exceptions exist, and a loan included in income can later be deducted when repaid, unless the repayment is part of a series (section 20); see shareholder loans. A loan that is not included in income can still give a taxable interest benefit (section 80.4); see interest on a shareholder loan.

At year-end:

1. List each advance and repayment by shareholder, with dates. Every advance made in one fiscal year shares one deadline, one year after that year-end, whether it was taken in the first month or the last.
2. Work out how the balance can be cleared before that deadline. The CRA says a dividend, salary or bonus can be applied against the loan, and that this is not a series even if new borrowing follows. A repayment funded by a new loan from the corporation generally is (CRA folio S3-F1-C1). Salary or a bonus goes through payroll; a dividend needs its own declaration and reporting (next section). Which route fits depends on the corporation's retained earnings and the shareholder's other income, so settle it with the accountant.
3. Keep the evidence. The folio says a loan can be shown by a written agreement or other convincing evidence, such as a corporate resolution, and that accounting entries alone do not decide whether a loan exists.
4. Report it. Complete Schedule 11 if the corporation had transactions with shareholders, officers or employees, other than ordinary-course ones (CRA: T2 guide, chapter 2; Schedule 11).

Recording the account is in the shareholder loan account guide; costs the owner paid personally are in business expenses paid personally.

How do I record dividends and owner pay, and when are the T5 and T4 due?

Record each dividend against retained earnings, backed by a dated directors' resolution. Report taxable dividends paid to Canadian-resident recipients on a T5 for the calendar year, not the fiscal year (see the June 30 example). A capital dividend is not reported on a T5; the private corporation elects on Form T2054 on or before the earlier of the day the dividend becomes payable and the first day any part is paid (section 83(2)). A corporation must pass a solvency test before it declares a dividend: for a federal corporation it is in CBCA section 42, and a provincial corporation should confirm its own statute. Directors who vote for a dividend that breaks the federal test are personally liable to restore it, and a claim must start within two years of the resolution (CBCA section 118). See dividends and negative retained earnings, and dividends before or after year-end for one declared after the year-end.

The T5 return and slips are due the last day of February after the dividend year, and a slip is needed for each recipient whose taxable dividends for the year reach $50 (CRA: T5 guide). Dividends paid to a non-resident are not reported on a T5; they have their own return and withholding rules, which this page does not cover. T4 slips and the T4 return are due the last day of February following the calendar year to which the slips apply (CRA: when to file). A T4 or T5 return filed late costs at least $100.

Salary is reported on the T4 for the year it is paid, regardless of when it was earned (CRA: T4 guide). Money taken out without payroll is not yet salary: see paying yourself a salary after the fact. Entries are in recording dividends; late slips are in the late slips penalty guide.

Do the payroll remittances and T4 totals agree with the books?

They must agree three ways: the payroll ledger, the amounts remitted to the CRA, and the T4 Summary. The T4 Summary asks for the total deductions reported on the slips and the total remitted for the payroll account, and the difference goes on a balance-due or overpayment line. The CRA generally does not charge or refund a difference of $2 or less (CRA: T4 Summary).

When the totals differ, the CRA may send a PD4R notice. An over-remitted credit is not refunded or transferred until the employer explains it, and an under-remittance must be paid as soon as possible, with penalties and interest possible (CRA: PD4R). Before the T4 is filed, check that:

• The last pay run's remittance, which may fall after year-end, is a payroll liability at year-end.
• Pay recorded for the calendar year matches each T4. A fiscal year that is not the calendar year needs the payroll register split by calendar year.
• The remittances the CRA shows match those in the books. Confirm on the CRA account how it applied a January remittance for December pay before explaining a difference.

Directors can be personally liable for payroll deductions the corporation did not remit (Income Tax Act, section 227.1; CPP and EI follow the same rule) and for GST/HST it did not remit (Excise Tax Act, section 323), with interest and penalties. Each has conditions, such as the corporation's collection steps failing or insolvency, and a due-diligence defence, and the CRA generally has two years after a person last ceased to be a director to pursue the amount.

Recording a pay run is in the payroll journal entry guide; missed remittances are in late payroll remittances.

Do the GST/HST returns filed agree with the books, and when is an annual return due?

An annual filer that is a corporation generally files and pays 3 months after its fiscal year-end; a monthly or quarterly filer is due 1 month after the reporting period ends (CRA: GST/HST deadlines).

Before the T2, compare the GST/HST payable or refundable account with the returns filed for the year and with the CRA's balance. Tax collected, credits claimed and payments should explain it. If they do not, see a GST/HST return that does not match the books and reconciling GST/HST payable to the CRA. Whether an annual filer owes quarterly instalments, and what a reporting period that does not line up with the fiscal year means, is in GST/HST reporting period and fiscal year.

What year-end entries come before the T2?

Seven items put income, costs and assets in the right year.

Unpaid bonuses and the 180-day rule

A bonus, salary or other remuneration accrued at year-end that is still unpaid on the 180th day after year-end is deducted in the year it is paid, not the year it accrued (section 78(4)). Reasonable vacation pay and salary deferral arrangement amounts are excluded. For a personal services business, the incorporated employee's salary or bonus is deductible against that income only if paid in the year, and the 180 days do not extend that (section 18(1)(p)).

The T2 for a December 31 year-end is due within a day or two of the 180th day, so the accountant needs the payment date before filing.

How do I record income tax payable and instalments?

The accountant works out the year's income tax on the T2; the books need every instalment already paid, matched to the CRA's account. For federal income tax, a corporation generally pays by monthly or quarterly instalments, unless its tax payable for either the current or the previous tax year is $3,000 or less. For a first tax year, most instalments are not required and any tax owing is due by the balance-due day (CRA: instalment requirements).

Record each payment against income tax payable, not as an expense. Until the T2 is calculated, the year-end balance is an estimate. The entries are in recording corporate tax instalments.

What do I send the accountant for the T2?

Send the records that prove each balance. The T2 carries financial statement information in GIFI format (the CRA's standard codes for financial statement lines), and the CRA says each corporation should include complete financial statement information for the year (CRA: T2 guide, chapter 2).

• Bank, credit card and loan statements through the year-end date.
• The shareholder loan schedule by shareholder, with dates.
• Payroll remittance statements, T4 Summary figures and slips.
• GST/HST returns filed for the year and the CRA's balance.
• Invoices for assets bought or sold, and last year's CCA schedule.
• Dividend resolutions and T5 records.
• The inventory count and valuation, if the corporation holds stock.
• Instalment receipts, and last year's T2 and notice of assessment.

Which statements the T2 needs and who prepares them is in year-end financial statements for a corporation. If an accountant's compilation report will accompany them, see the compilation report guide. Book profit and taxable income differ; see tax income versus book profit.

What changes by province?

For the T2 itself, little: the CRA administers provincial and territorial corporate income tax for every province and territory except Quebec and Alberta (CRA: provincial and territorial corporation tax).

• Alberta: a corporation with a permanent establishment in Alberta files an Alberta return (AT1) within six months of the end of the tax year, unless exempt (Alberta: corporate income tax).
• Quebec: Revenu Québec administers its own corporate income tax, with its own return and due date, so check Revenu Québec for them; this page covers the federal dates (CRA: provincial and territorial corporation tax). A place of business in Quebec can also mean remitting payroll deductions to Revenu Québec (CRA: how and when to remit).
• Sales tax and payroll taxes: provincial sales tax, Quebec sales tax, employer health tax and workers' compensation follow each province's own rules and dates, which this page does not cover. See GST, HST, PST and QST by province and running payroll.

Example

These examples are illustrative; amounts are in Canadian dollars.

Dates for a June 30 year-end

An Ontario CCPC has a June 30, 2026 fiscal year-end. The T2 is due December 31, 2026. The balance of tax is due August 31, 2026, or, if the corporation meets the CRA's three-month conditions, September 30, which is a CRA public holiday, so October 1, 2026. If it files GST/HST annually on the same fiscal year, that return and payment are also due October 1, 2026. Its T4 and T5 slips follow the calendar year: slips for pay and dividends paid in 2026 are due the last day of February 2027, and February 28 is a Sunday, so March 1, 2027. They are not tied to June 30.

A shareholder loan carried past year-end

A corporation has a December 31 year-end. During the year ended December 31, 2026, the owner, an individual and a shareholder, took C$30,000 more than they put in, and no salary or dividend covered it. Assume no exception in section 15 applies other than the one-year repayment. The loan account shows C$30,000 owing by the owner, reported on Schedule 11.

• Year ended December 31, 2026: the C$30,000 is a loan made in this year. If the deadline passes unmet, it is included in the owner's income for 2026, the year of the loan.
• Year ended December 31, 2027: the deadline is December 31, 2027. The owner repays C$30,000 from personal savings in November 2027, without borrowing from the corporation again to fund it. On these facts the repayment would generally not be treated as part of a series, so the one-year exception could apply; the CRA looks at the whole pattern of loans and repayments. Funding the repayment with a new C$30,000 loan from the corporation would generally be treated as a series. If the exception applies, the loan is not included in income, but with little or no interest charged the owner can still have a taxable interest benefit for 2026 and for 2027 until repayment (section 80.4).

A bonus accrued at year-end

A corporation with a December 31, 2026 year-end accrues a C$20,000 bonus for its owner-manager. Assume the bonus is otherwise deductible and does not relate to personal services business income. The 180th day after year-end is June 29, 2027.

• Paid May 14, 2027: the bonus is deductible for the year ended December 31, 2026. It is reported on the T4 for 2027, the year it is paid.
• Paid August 20, 2027: the bonus was still unpaid on the 180th day, so it is deducted in the year ending December 31, 2027. The 2026 T2 does not deduct it.

Different for you?

• The year-end has passed and the shareholder loan, payroll or GST/HST totals will not tie, or this is the first year-end: the order of fixes before the T2 date, whether a shareholder loan must be repaid or reclassified in time, and what the accountant needs in the file depend on dates and records that need review. Get corporate tax help with the records in hand.
• Your books are months behind or were never set up: see catching up on overdue books and bookkeeping help.
• The corporation never filed a T2, or filed years late: see catching up on unfiled corporate returns and corporate tax help.
• You are setting up a newly incorporated company's books: see books for a new CCPC; for the year-end itself, see choosing or changing a year-end.
• The owner paid costs personally, the corporation paid personal costs, or business income went into a personal account: see business expenses paid personally, corporation-paid personal expenses and corporate income in a personal account. A benefit or loan from a corporation to a shareholder can be taxed to the shareholder (section 15), so these need review: corporate tax help.
• Family abroad sent money into the business: see money from parents abroad in your business.
• A CRA payroll discrepancy notice (PD4R) has arrived: see late payroll remittances and bookkeeping help.