Corporate tax accountant for Toronto corporations

One return, two layers of tax

Ontario has the CRA collect its corporate income tax, so a Toronto corporation files a single T2 that carries both the federal and provincial charge. Combined, active business income eligible for the small business deduction is taxed at 12.2% — 9% federal plus Ontario’s 3.2% lower rate — on a $500,000 business limit. General income is taxed at 26.5%, being 15% federal plus Ontario’s 11.5% general rate. That pairing is unusual: Ontario’s small-business rate is the highest among the provinces while its general rate is among the lowest, so the gap between qualifying and non-qualifying income is narrower here than almost anywhere else. For a growing Toronto company approaching the limit, that spread is the number to plan against.

HST instead of two sales taxes

Ontario harmonised its provincial sales tax with the GST, so a single 13% HST covers both and is administered federally. The corporate consequence is cleaner than it looks. There is one registration, one return and — critically — the provincial component is recoverable as an input tax credit in the same way the federal component is, so no provincial sales tax ends up buried inside cost of goods sold. A Toronto company that has always operated under HST often meets that distinction for the first time when it starts buying from or selling into a province that still charges a separate provincial sales tax. Input tax credits covers what is recoverable and what supporting records the CRA expects.

Employer health tax: the rate is chosen before the exemption

Ontario levies an employer health tax on remuneration, and it contains a feature that catches employers out. The rate is selected from the payroll bands using total Ontario remuneration before the exemption is deducted; only then is the exemption subtracted from the taxable base. Crossing a band boundary therefore raises the rate applied to everything, not just the excess. The exemption is $1,000,000, and no exemption is available where the employer or its associated group has more than $5,000,000 of annual Ontario payroll. Associated employers must file an allocation agreement to share the single exemption between them. For a Toronto corporation adding staff, this is a cost to model before the hiring, not after.

The registry annual return is a separate filing

An Ontario corporation’s annual return is filed through the Ontario Business Registry within six months of fiscal year end. It is not part of the T2, it is not filed by the CRA, and missing it does not produce a tax assessment — which is precisely why it gets forgotten. It is a corporate-law filing that keeps the company in good standing and its registered information current, and the consequences of neglect are administrative rather than fiscal until the day they are not, typically when a lender, purchaser or lawyer asks for a certificate of status. Corporate annual returns explains how the obligation differs by jurisdiction of incorporation.

Dividends out of a Toronto professional or agency corporation

Toronto carries a dense population of small corporations in professional services, design, marketing and technology, often with a spouse or family member holding shares. Paying dividends to those shareholders is not the planning tool it was before the tax on split income was extended: unless the recipient meets one of the excluded-share, sufficient-labour-contribution or age-based exceptions, the dividend can be taxed at the top marginal rate regardless of the recipient’s other income. The rules turn on facts — hours actually worked, ownership percentages, the nature of the business — and the analysis belongs before the dividend is declared. Tax on split income sets out the exceptions.

Instalments once the corporation is profitable

A Toronto corporation past its first profitable year generally moves onto instalments, paying its combined federal and Ontario tax through the year rather than at filing. The base is built from prior-year figures, which means a company coming off a strong year continues paying at that level into a weaker one unless the estimate is revised. The reverse is more common and more expensive: a fast-growing company pays instalments sized to a much smaller prior year, then meets a large balance and interest at filing. The balance is generally due before the return itself, so the cash question arrives ahead of the paperwork. T2 deadlines and penalties sets out the dates.

Working with a CPA outside Ontario

EverStone is a sole practitioner CPA firm operating from one office at 32615 South Fraser Way in Abbotsford, British Columbia. There is no Toronto office, no branch and no local staff. Ontario corporate tax is reported inside the federal return under rules that are identical wherever the preparer sits, and the return is transmitted electronically, so the engagement runs entirely remotely: secure document exchange, video calls booked around your schedule, and e-signature. What you give up is the ability to drop paperwork at a downtown reception desk. What you get is the same CPA on the file from the first question to the filed return.