Find out if you have to file a T2 return

Find out if you have to file a T2 return

Resident corporations

All corporations- including non-profit organizations, tax-exempt corporations, and inactive corporations- have to file a T2 return for every tax year, even if there is no tax payable. The only exceptions to this rule are tax-exempt Crown corporations, Hutterite colonies, and corporations that were registered charities throughout the year.

Non-resident corporations

A non-resident corporation has to file a T2 return if, at any time in the year, one of the following situations applies:

• it carried on business in Canada

• it had a taxable capital gain

• it disposed of taxable Canadian property, unless the disposition meets all the criteria listed below in the section "Dispositions of taxable Canadian property (certificates of compliance)"

This requirement applies even if the corporation claims that any profits or gains realized are exempt from Canadian income tax due to the provisions of a tax treaty.

Business is defined in subsection 248(1) and the extended meaning of carrying on business (in Canada) is defined in section 253.

The references to taxable capital gain do not include any gain resulting from the disposition of shares that are listed on a designated stock exchange (other than taxable Canadian property).

A non-resident corporation also has to file a T2 return in a number of situations, including:

• when it has filed Form NR6, Undertaking to File an Income Tax Return by a Non-Resident Receiving Rent from Real or Immovable Property or Receiving a Timber Royalty, to pay Part I tax on the net amount of timber royalty income or rental income from real property under subsection 216(4) for the current year and the CRA approved it

• when it has filed Form T1288, Application by a Non-Resident of Canada (Corporation) for a Reduction in the Amount of Non-Resident Tax Required to Be Withheld on Income Earned from Acting in a Film or Video Production, to pay Part I tax on the net amount of acting services under subsection 216.1(1) for the current year and the CRA approved it

Even if neither of these requirements applies, a non-resident corporation may still want to file a return if any of the following situations apply:

• when it wants to claim a refund

• when it wants to elect to pay Part I tax on the net amount of timber royalty income or rental income from real property under subsection 216(1) for the current year

• when it wants to elect to pay Part I tax on the net amount of acting services under subsection 216.1(1) for the current year

  Note
  Non-resident corporations must file their T2 return, schedules, and the General Index of Financial Information in Canadian funds only. They are not eligible to file in a functional currency per section 261.

If you have questions about non-resident returns, go to canada.ca/taxes-international-business.

Dispositions of taxable Canadian property (certificates of compliance)

A non-resident corporation that disposes of taxable Canadian property must notify the CRA and may be required to get a certificate of compliance under section 116. For details, see Information Circular IC72-17, Procedures Concerning the Disposition of Taxable Canadian Property by Non-residents of Canada - Section 116.

A non-resident corporation that has a taxable capital gain or disposed of taxable Canadian property, including a corporation that may have received a certificate of compliance from the CRA, has to file a return, unless the disposition meets all the following criteria:

• no tax is payable under Part I for the tax year

• the corporation is not liable to pay any amount under the Act for any previous tax year (other than an amount covered by adequate security under section 116 or 220)

• each taxable Canadian property disposed of in the tax year is one of the following:

  • excluded property under section 116

  • property for which a certificate was issued under section 116

Taxable Canadian property excludes shares of corporations, and certain other interests, that, during the 60-month period ending at the time of determination, do not derive their value principally from real or immovable property situated in Canada (including Canadian resource property and timber resource property).

Non-resident corporations claiming treaty exemption

If you carried on a treaty-protected business in Canada or disposed of a taxable Canadian property that was treaty-protected property during the year (as defined in section 248), you have to complete all of the following lines on your return:

• lines 001 to 082 of page 1

• lines 164, 170, and 171 of page 2

• lines 270 to 289 (except line 271) of page 3

• lines 780 to 990, if applicable, of page 9

For each of the questions asked at lines 164, 170, and 171 on page 2 of the return to which your response is yes, complete the appropriate form or schedule and attach it to your return. In addition, you have to complete Schedule 91, Information Concerning Claims for Treaty-Based Exemptions.

Rental income from Canada

Rental income from Canada is subject to a 25% withholding on the gross rental income under Part XIII, unless the rate is reduced by a reciprocal tax treaty. A non-resident corporation can elect to be taxed under Part I on its net rental income by filing a T2 return under subsection 216(1) within two years of the end of the tax year. If the non-resident corporation has filed Form NR6, Undertaking to File an Income Tax Return by a Non-Resident Receiving Rent from Real or Immovable Property or Receiving a Timber Royalty, it must file a T2 return under subsection 216(4) within six months of the tax year end. For more information, see IT393R2 - Election Re: Tax on Rents and Timber Royalties Non-Residents.

Reference
Guide T4144, Income Tax Guide for Electing Under Section 216

Services rendered in Canada (withholding amount)

A non-resident corporation is subject to a 15% withholding under Regulation 105 on any fee or other amount paid to it for services rendered in Canada (regardless of whether the services are provided by an employee of the corporation or are sub-contracted to another party). This withholding is held on account of any potential tax liability that the corporation may have to Canada. The corporation's tax liability is determined when its Canadian income tax return is assessed.

A corporation related to a non-resident actor is subject to a 23% withholding tax under Part XIII on all amounts it receives for the acting services of the actor in a film or video production in Canada. This withholding tax represents the final tax liability for these acting services. The corporation may elect not to be taxed under Part XIII at the 23% rate by filing a return of income under Part I for the year. A non-resident corporation that has received a reduction (filed Form T1288) of this withholding tax from the CRA still has to file a return.

Reference
Section 153

5