T2 Corporation – Income Tax Guide – What's New

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What's new

Find out if this guide is for you

This guide gives you basic information on how to complete the T2 Corporation Income Tax Return. This return is used to calculate federal income tax and credits. Corporations that have a permanent establishment in any province or territory other than Quebec or Alberta also use this return to report provincial and/or territorial income taxes and credits. Corporations with a permanent establishment in Quebec or Alberta must file a separate provincial return.

What's new

Previously announced measures

Many measures announced before the 2022 federal budget are being implemented:

Electronic signature for Form T183CORP
Mandatory electronic filing threshold
Mandatory electronic payments
Mandatory disclosure rules. See Information reporting of tax avoidance transactions
Electronic correspondence from the CRA
Zero-emission passenger vehicles
Capital cost allowance (CCA)
- CCA for clean energy equipment (classes 43.1 and 43.2)
- Immediate expensing for Canadian-controlled private corporations (CCPCs). See Designated immediate expensing property
Rate reduction for zero emission technology manufacturers
Canadian film or video production tax credit
Film or video production services tax credit

COVID-19 support programs

For information on all support programs related to COVID-19, go to COVID-19: Financial support for people, businesses and organizations.

Carbon capture, utilization, and storage (CCUS)

Investment tax credit for carbon capture, utilization, and storage

CCUS is a suite of technologies that capture carbon dioxide (CO2) emissions from fuel combustion, industrial processes, or directly from the air, to either store the CO2 or use it in industry. A new CCUS refundable tax credit is proposed for businesses that incur eligible expenses after 2021 and before 2041.

CCA for CCUS

Four new classes of depreciable property are proposed. Class 57 would have an 8% declining balance rate. It would apply to expenses incurred for certain property that is part of a CCUS project (including monitoring or control equipment) and that is to be used solely for capturing CO2, for transporting captured carbon, or for storing captured carbon in a geological formation.

Class 58 would have a 20% declining balance rate. It would apply to expenses incurred for certain property that is part of a CCUS project, such as equipment that is used solely for using CO2 in industrial production (including monitoring and control equipment).

Class 59 would have a 100% rate and apply to expenses incurred after 2021 for determining the existence, location, extent, or quality of a geological formation to permanently store captured carbon in Canada (excluding enhanced oil recovery). This includes expenses for environmental studies or community consultations.

Class 60 would have a 30% declining balance rate and apply only to expenses incurred after 2021 in drilling, converting, or completing a well in Canada for the permanent storage of captured carbon (excluding enhanced oil recovery), and various other related expenses.

International taxation – Interest coupon stripping

Modifications to the interest withholding tax rules are introduced to ensure that the total interest withholding tax paid under an interest coupon stripping arrangement (ICSA) is the same as if the arrangement had not been undertaken and instead the interest had been paid to the non-resident lender. This measure would apply to interest accrued after April 6, 2022, that is paid or payable as a result of an ICSA, with one exception.

Hedging and short selling by Canadian financial institutions

Measures are proposed to prevent taxpayers that are in financial groups that include a registered securities dealer from using hedging and short selling arrangements to get artificial tax deductions. These measures would apply to dividends and related dividend compensation payments that are paid or become payable after April 6, 2022. If the relevant hedging transactions or related securities lending arrangement were in place before April 7, 2022, the measures would apply to dividends and related dividend compensation payments that are paid after September 2022.

Underused housing tax

An annual 1% tax is introduced on the value of non resident, non-Canadian-owned residential real estate in Canada that is considered to be vacant or underused, with some exceptions. This tax is effective for the 2022 and later calendar years. The initial Underused Housing Tax returns, for the 2022 calendar year, will have to be filed on or before April 30, 2023, and any tax payable will have to be remitted on or before that date. Corporations that are liable for this tax (and certain prescribed persons) must file this annual return separately from their T2 Corporation Income Tax Return.

Application of the general anti-avoidance rule (GAAR) to tax attributes

For transactions that occur on or after April 7, 2022, or for transactions where notices of determination are issued on or after April 7, 2022, the GAAR can apply to tax attributes that have not yet become relevant to the computation of tax. The changes to GAAR include changes to the definition of tax benefit. See the details on the impact of the changes to the definition of tax benefit on reportable transactions.

Substantive CCPCs and CCPC-related changes to foreign accrual property income (FAPI) rules

A private corporation that is a Canadian-controlled private corporation (CCPC) is subject to refundable Part I tax on certain types of passive income. To avoid the imposition of the refundable tax, tax planning strategies have developed that rely on a loss of CCPC status in anticipation of earning investment income. The concept of substantive CCPC has been proposed to eliminate the potential advantages from manipulating CCPC status by taxing the passive income as if the private corporation had remained a CCPC.

Changes are also proposed to the FAPI rules (the changes would apply to both CCPCs and substantive CCPCs) to remove the tax deferral advantage that was available to CCPCs and their shareholders earning investment income through a controlled foreign affiliate.

Aside from these two measures, a private corporation that is a substantive CCPC would continue to be treated as non-CCPC for all other purposes of the Income Tax Act. See Substantive CCPCs – Deferring tax using foreign entities (extra one year), Substantive CCPC – Deferral of tax using foreign entities, and Low rate income pool (LRIP).

Zero-emission passenger vehicles

For zero-emission passenger vehicles (new and used) acquired on or after January 1, 2022, the prescribed amount has increased from $55,000 to $59,000, before sales tax. See the details.

Capital cost allowance (CCA) for clean energy equipment

CCA classes 43.1 and 43.2 are expanded to include air source heat pumps primarily used for space and water heating. This applies to property that is acquired and that becomes available for use after April 6, 2022. See the details.

Flow-through shares for oil, gas and coal activities

The flow-through share regime is being eliminated for oil, gas, and coal activities, effective for expenditures under flow-through share agreements entered into after March 31, 2023. See the details.

Small business deduction

For tax years starting after April 6, 2022, the range over which the business limit of a CCPC and its associated corporations is reduced based on their taxable capital employed in Canada is extended. The new range is $10 million to $50 million. It was previously $10 million to $15 million. See Line 426.

Additional tax on banks and life insurers

For tax years that end after April 7, 2022, an additional tax of 1.5% of the taxable income is introduced for members of bank and life insurer groups (determined in the same way as the Canada recovery dividend). A $100 million taxable income exemption could be allocated by agreement amongst group members. For a tax year that includes April 7, 2022, the additional tax would be prorated based on the number of days after April 7, 2022. See Line 565.

Rate reduction for zero-emission technology manufacturers

A temporary measure to reduce the corporate tax rates on the manufacturing profits from qualifying zero-emission technology is available for tax years starting after 2021. As well, the manufacturing of air-source heat pumps used for space or water heating is now included as a qualified zero emission technology manufacturing activity.

Income that would otherwise be subject to the 15% general corporate rate is now taxed at a 7.5% rate, and income that would otherwise be taxed at the 9% small business rate is now taxed at a 4.5% rate. The reduced rates will be gradually phased out starting in tax years that begin in 2029 and totally phased out for tax years that begin after 2031. See Line 616.

Canada recovery dividend on banks and life insurers

Under new Part VI.2 of the Income Tax Act, a Canada recovery dividend (CRD) is introduced in the form of a one-time 15% tax on bank and life insurer groups. The one time tax will apply to the 2020 and 2021 average taxable income (before any deductions for non capital losses or net capital losses) of any member in the group that is a bank, life insurer or other related financial institution at any time during its 2021 tax year. A proration rule would be provided for short tax years.

A $1 billion taxable income exemption could be allocated by agreement amongst group members. The CRD tax would be imposed for the 2022 tax year and would be payable in equal amounts over five years, starting in 2022. See Line 725.

EFILE registration

All EFILE registrations or renewals now require a representative identifier (RepID). See Mandatory internet filing for tax preparers.

Newfoundland and Labrador film and video industry tax credit

This credit, which was set to end December 31, 2021, is now permanent. See Newfoundland and Labrador film and video industry tax credit.

Newfoundland and Labrador all spend film and video production tax credit

A new all spend film and video production tax credit is introduced. The 30% tax credit applies to total eligible production costs, with a maximum credit of $10 million annually for each project. This credit will be administered by the province.

Newfoundland and Labrador manufacturing and processing investment tax credit

Effective April 7, 2022, a new 10% manufacturing and processing investment tax credit is introduced. This credit will encourage the manufacturing and production, fishery, farming and forestry sectors to invest in capital equipment located in, and for use in a business operated in, the province. In the case of a Canadian‑controlled private corporations (CCPCs), up to 40% of the credit is refundable. See Newfoundland and Labrador manufacturing and processing investment tax credit.

Newfoundland and Labrador green technology tax credit

Effective April 7, 2022, a new 20% green technology tax credit is introduced for CCPCs that invest in equipment for green activities, such as energy conservation, clean energy generation, and efficient use of fossil fuels, if the equipment is located in, and for use in a business operated in, the province. The maximum credit is $1 million annually, of which 40% is refundable. See Newfoundland and Labrador green technology tax credit.

Nova Scotia corporate tax reduction for new small businesses

To be eligible for the reduction, a corporation must have at least two employees, one of whom is not related to a specified shareholder of the corporation. The criteria to be a full-time employee was replaced with a requirement that one or more employees not related to a shareholder have at least 1,300 total paid hours of employment in a 12-month period, or an equivalent amount prorated for a short tax year. See Nova Scotia corporate tax reduction for new small businesses.

Nova Scotia capital investment tax credit

This credit, which was set to end December 31, 2024, has been extended to December 31, 2029. The amount of the tax credit was increased from 15% to 25% of the capital cost for qualified property acquired after September 30, 2022. See Nova Scotia capital investment tax credit.

Nova Scotia financial institutions capital tax

Effective November 1, 2021, Nova Scotia harmonized the administration of the provincial capital tax on financial institutions with the federal capital tax. See Nova Scotia financial institutions capital tax.

Ontario small business deduction (SBD)

Ontario announced in its Fall Economic Statement that, subject to the approval of the Legislative Assembly of Ontario, it will parallel the federal change in the SBD phase-out, first announced in the 2022 federal budget. The SBD will not be reduced to nil until a Canadian-controlled private corporation and its associated corporations have a combined taxable capital of $50 million. This change is effective for tax years beginning after April 6, 2022.

Ontario computer animation and special effects tax credit

Eligible labour expenditures may include remote work done by employees, if the work is done in Ontario and the employee is an Ontario resident who reports to and is under the direction of an eligible tax credit applicant with a permanent establishment in Ontario. See Ontario computer animation and special effects tax credit.

Ontario production services tax credit

Effective for expenditures incurred after November 14, 2022, the definition of eligible tangible property expenditures is amended to remove the “ordinarily engaged in” requirement for expenditures for leasing real property for on-location filming. Location fees paid to homeowners and business owners who are not ordinarily engaged in the business of selling or leasing their homes or businesses now qualify for the credit.

Ontario interactive digital media tax credit

Eligible labour expenditures may include remote work done by employees, if the work is done in Ontario and the employee is an Ontario resident who reports to and is under the direction of an eligible tax credit applicant with a permanent establishment in Ontario. See Ontario interactive digital media tax credit.

Ontario book publishing tax credit

The requirement for a literary work to be published in an edition of at least 500 copies of a bound book has been removed for books published in 2020 and later.

Ontario regional opportunities investment tax credit

The temporary increase of this credit to 20% is extended to the end of 2023. See Ontario regional opportunities investment tax credit.

Manitoba small business venture tax credit

This credit, which was set to end December 31, 2022, is now permanent. See Manitoba small business venture tax credit.

Manitoba film and video production tax credit

Film producers are able to get advance credits before the completion of a film if they submit the proper documents. See Manitoba film and video production tax credit.

Manitoba community enterprise development tax credit

This credit, which was set to end December 31, 2022, is now permanent. See Manitoba community enterprise development tax credit.

Lower rate of Saskatchewan income tax

The lower rate of Saskatchewan income tax is extended at 0% retroactive to July 1, 2022. On July 1, 2023, the rate will move to 1% and on July 1, 2024, the rate will return to 2%. See Saskatchewan.

British Columbia scientific research and experimental development tax credit

This credit, which was set to end August 31, 2022, has been extended five years to August 31, 2027. See British Columbia scientific research and experimental development tax credit.

British Columbia production services tax credit

The pre-certification filing deadline is extended from 60 days to 120 days after the production's first accredited BC labour expenditure (ABCLE). Corporations have 120 days to notify Creative BC that they intend to claim the tax credit. This applies to productions incurring their first ABCLE on or after February 22, 2022. For productions incurring their first ABCLE between July 1, 2020, and February 21, 2022, corporations will be allowed to claim ABCLE incurred up to 120 days before filing the pre-certification notice, regardless of how many days after the first incurred ABCLE the pre-certification notice was filed. See British Columbia production services tax credit.

British Columbia training tax credit

This credit, which was set to end December 31, 2022, has been extended two years to December 31, 2024. For an employer to be able to claim this credit, the employee will have to be registered in a prescribed program administered through SkilledTradesBC, the new name for the BC Industry Training Authority. See British Columbia training tax credit.

British Columbia shipbuilding and ship repair industry tax credit

This credit, which was set to end December 31, 2022, has been extended two years to December 31, 2024. For an employer to be able to claim this credit, the employee will have to be registered in a prescribed program administered through SkilledTradesBC, the new name for the BC Industry Training Authority. See British Columbia shipbuilding and ship repair industry tax credit.

British Columbia clean buildings tax credit

Effective February 23, 2022, a new temporary tax credit is introduced for retrofits that improve the energy efficiency of multi-unit residential buildings with four or more dwellings and prescribed types of commercial buildings. The refundable credit is equal to 5% of qualifying expenditures made before April 1, 2025, and incurred under an agreement entered into after February 22, 2022. See British Columbia clean buildings tax credit.

Yukon carbon rebate

For tax years ending after 2021, the list of assets eligible for the Super Green Credit under the carbon rebate program for non-mining businesses includes Yukon assets in capital cost allowance class 56. See Yukon carbon rebate.