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Everything You Need to Know About T1 and T2 Tax Returns

In Canada, there are two types of tax returns that you may need to file if you are an individual and also owns a corporation: T1 and T2. T1 is the personal income tax return, while T2 is the corporate income tax return. There are several differences between these two types of returns, which this article will outline. First, let’s look at what each type of return covers.

 

T1 Tax Return

 

A T1 tax return is filed by individuals and covers their income from all sources. This includes employment, self employed business,rental ,investment, and other income earned throughout the year. The T1 return is also used to claim various deductions and credits, which can lower your overall taxes owing.

 

T2 Tax Return

 

A T2 tax return, on the other hand, is filed by corporations and covers their business income. This includes revenue from sales, investment income, and any other type of income earned throughout the year. Like the T1 return, the T2 return can also be used to claim various deductions and credits.

 

Key Differences Between T1 and T2 Tax Returns

 

Now that we’ve covered what each type of return covers, let’s look at the key differences between them.

 


How Taxes are Calculated


For a T1 return, your taxes owing are calculated based on your marginal tax rate. This means that the more income you earn, the higher your taxes owing will be. For a T2 return, your taxes owing are calculated based on your corporate tax rate. This rate is usually lower than your marginal tax rate, meaning that corporations often owe fewer taxes than individuals.


Filing Deadline


For a T1 return, the deadline is usually April 30th of the year following the tax year. So, for example, if you’re filing your 2021 taxes, the deadline would be April 30th, 2022, in case of self employed individuals the deadline for filing T1 return is 15th of June. For a T2 return, the deadline is usually six months after the end of the tax year. So, using the same example, if you’re corporation year end is 31st Dec , the deadline would be June 30th, 2022.


Method of Filing


One final difference is that a T2 return must be filed electronically, while a T1 return can be filed electronically or by mail.


Last Words


As you can see, a few key differences exist between a T1 and a T2 tax return. Understanding these differences is important to ensure you file the correct return for your situation. This article has covered all the details about Canada's T1 and T2 tax returns. Now that you understand the differences between these two types of returns, you’ll be able to ensure you file the correct return for your situation.