How to Amend a T2 Corporate Tax Return in Canada

Filing a corporate tax return does not always mean the numbers are final. A corporation may later discover a missed expense, unreported income, an incorrect tax schedule, or financial information that needs to be corrected.

Fortunately, a previously assessed T2 return can generally be changed by asking the Canada Revenue Agency (CRA) to reassess it. This is commonly referred to as a T2 adjustment or T2 reassessment request.

If you are wondering how to amend a T2 corporate tax return in Canada, the important point is that the correction should be made through the reassessment process rather than by simply submitting another original return. An adjustment corrects a return that has already been assessed; if the original return was filed late or remains unfiled, different consequences may apply under the rules for late corporate tax filing penalties in Canada.

When should you adjust a T2 return with the CRA?

A corporation may need to amend its T2 when it discovers issues such as:

• income that was omitted from the original return;
• a deductible business expense that was missed;
• an expense reported in the wrong category;
• incorrect capital asset or capital cost allowance information;
• an incorrectly reported dividend;
• errors involving investment income or active business income;
• changes to tax losses;
• incorrect General Index of Financial Information (GIFI) information;
• an incomplete or incorrect T2 schedule;
• financial statements that were subsequently corrected;
• a tax deduction or credit that was not originally claimed.

An amendment may increase the corporation’s tax, decrease it, or simply change tax balances that may become relevant in another year.

Can you just file another T2 return?

Generally, no.

Once the original return has been assessed, the proper approach is to request a reassessment of the existing T2 return. Understanding the CRA reassessment process for corporations can help you distinguish a taxpayer-requested adjustment from a change initiated by the CRA.

The CRA states that requesting the reassessment electronically through current commercial tax preparation software is the fastest way to make changes. A reassessment may also be requested using the applicable bar-code information or, in certain circumstances, by writing to the corporation’s tax centre.

How to amend a T2 corporate tax return in Canada: step by step

Step 1: Determine exactly what needs to change

Start by identifying the original error and calculating its complete tax impact.

A missed expense, for example, could affect more than the corporation’s net income. It could also change:

• taxable income;
• the small business deduction;
• tax credits or limits;
• available losses;
• corporate tax payable;
• future instalment calculations.

A professional T2 amendment should therefore normally be prepared using the complete corporate tax file rather than by changing one isolated number.

Step 2: Recalculate the T2 and affected schedules

The corporate tax calculations should then be updated using the appropriate tax software.

Depending on the error, amended schedules, GIFI information or revised financial statements may also be required. Reviewing the financial statements required for T2 filing can help identify which accounting records may need to be corrected or resubmitted.

For a written adjustment request, the CRA asks corporations to clearly provide:

• the corporation’s name;
• its Business Number (BN);
• the applicable tax year;
• details of the requested changes.

Relevant supporting documents such as revised financial statements, GIFI information and revised schedules should be included where applicable. Importantly, the CRA instructs corporations not to send the entire T2 return when making this type of written request.

Step 3: Submit the T2 reassessment request

For most professionally prepared corporate returns, the adjustment can be transmitted electronically through corporate tax software.

After processing the adjustment, the CRA will normally issue a Notice of Reassessment showing the revised results. This is part of what happens after you file a T2 return or submit a later adjustment.

The reassessment should be reviewed carefully to confirm that the CRA processed the requested changes as expected.

What if the amended T2 creates additional tax payable?

If the correction results in additional corporate income tax, interest may also apply.

CRA arrears interest is compounded daily on unpaid corporate tax from the original balance-due date until the balance is paid. A corporation expecting a reassessment can make an advance payment to reduce the interest that would otherwise continue accumulating.

This means a corporation that already knows an amendment will result in additional tax should not necessarily wait for the CRA’s Notice of Reassessment before considering payment.

What if the amendment reduces corporate tax?

An adjustment could reduce a balance owing, generate or increase a refund, or change tax balances that can be used in other years.

Not every adjustment produces an immediate cash refund. For example, an amendment might instead:

• increase a non-capital loss;
• change a capital cost allowance balance;
• increase an available tax credit;
• affect a future tax year.

How long do you have to amend a T2?

The CRA’s normal reassessment period depends in part on the corporation’s status.

For a Canadian-controlled private corporation (CCPC), the CRA can generally reassess a tax year within three years of the date of the original Notice of Assessment.

For a corporation that was not a CCPC at the end of the tax year, the normal period is generally four years.

Various rules can extend these reassessment periods in particular circumstances.

For that reason, an error should generally be addressed when it is discovered rather than left unresolved for several years.

T2 adjustment vs. Notice of Objection

These two processes should not be confused.

A T2 reassessment request is generally appropriate when the corporation discovers that its own return contained an error or missing information.

A Notice of Objection is used when the corporation disputes an assessment or reassessment made by the CRA.

Corporations generally have 90 days from the date of the Notice of Assessment or Reassessment to file a formal objection.

If there is a genuine dispute with the CRA, it is therefore important not to allow an objection deadline to expire simply because an adjustment request or informal discussion is underway.

What about Quebec corporations?

Quebec corporations generally file both a federal T2 return with the CRA and a separate CO-17 Corporation Income Tax Return with Revenu Québec.

Changing the federal T2 does not automatically replace the need to correct the Quebec corporate return. This is one of the important differences between CRA and provincial corporate tax returns.

Revenu Québec provides Form CO-17.R, Request for an Adjustment to a Corporation Income Tax Return. Revenu Québec also permits amended corporate income tax returns to be transmitted online using compatible commercial software.

When the same accounting or tax error affects both returns, the federal and Quebec filings should therefore normally be reviewed together.

What about Alberta corporations?

Alberta also administers its own provincial corporation income tax return, the AT1.

Using certified software, taxpayers and tax preparers can electronically Net File an amended AT1 with Alberta’s Tax and Revenue Administration.

For most other provinces and territories, the T2 serves as both the federal and provincial or territorial corporate income tax return. Quebec and Alberta generally require separate provincial corporation tax returns.

An amended T2 can affect later tax years

This is an important issue that business owners sometimes overlook.

Changing a prior-year T2 may alter:

• loss carryforward balances;
• undepreciated capital cost balances;
• tax credit balances;
• corporate dividend-related tax accounts;
• amounts carried into later T2 schedules;
• instalment calculations based on earlier tax years.

As a result, correcting one year may require a review of corporate returns filed for subsequent years.

Does every small T2 mistake require an amendment?

Not necessarily.

Some administrative information can potentially be corrected without recalculating the entire return. However, an error affecting income, taxable income, tax payable, a credit, a loss or another important tax balance should be reviewed carefully.

Will amending a T2 trigger a CRA audit?

Submitting an adjustment request does not automatically mean the corporation will be audited.

The CRA may, however, ask for additional information or supporting documents before accepting a significant adjustment. Maintaining invoices, contracts, accounting entries, calculations and other supporting documentation can therefore be important.

What if several corporate tax years are incorrect or unfiled?

A straightforward T2 reassessment request may not be enough if the corporation has discovered:

• several years of unreported income;
• multiple unfiled corporate returns;
• significant recurring errors;
• materially incorrect tax reporting over several years.

In those circumstances, the entire filing history should generally be reviewed before amendments are submitted so that the corporation can determine the appropriate way to bring its tax affairs up to date.

Need help amending a T2 corporate tax return?

Correcting a corporate return can be relatively straightforward when the error is isolated and the supporting accounting records are available. It becomes more complicated when the amendment affects several tax schedules, multiple years or separate provincial filings.

T2Online.ca can assist Canadian corporations with reviewing previously filed T2 returns, preparing the required corrections and submitting reassessment requests to the CRA and, where applicable, the relevant provincial tax authority.