Low-Cost Asset Sale Versus Share Sale Analysis for Canadian Businesses

A T2 corporate return is due six months after the fiscal year end, whichever month that falls in. The balance owing comes earlier: two months after year end, or three months for an eligible Canadian-controlled private corporation claiming the small business deduction. Filing late costs 5% of the unpaid balance plus 1% per month for up to 12 months. For tax years beginning after 2023, electronic filing is mandatory for essentially all corporations whatever their gross revenue — the old $1 million threshold no longer applies — and paper-filing a return that had to be filed electronically carries a $1,000 penalty.

Canada taxes income at graduated rates: federal brackets plus your province's brackets apply, and only the income sitting inside a bracket is taxed at that bracket's rate. The rate on your next dollar is your marginal rate, while the share of your total income you actually pay is lower, because credits such as the basic personal amount shelter the first slice. Look up the current federal and provincial brackets for your province, or run your figures through the CRA payroll calculator.

Start by claiming everything you are entitled to: RRSP contributions, child care, moving and employment expenses, self-employment costs, tuition, medical expenses, donations and the credits that follow your family situation. Timing helps too, such as deferring a bonus or triggering a capital loss against a gain. Pension income splitting and spousal RRSP contributions move income to a lower-rate spouse. For a business, incorporating and planning how money is drawn out matters. Leaving income unreported is evasion, not planning.

Work it from your own figures rather than a rule of thumb. A corporation on active business income pays 9% federally on the first $500,000 for 2026, plus the provincial small business rate — 3.2% in Ontario, falling to 2.2% on 1 July 2026 — so reserve that share of profit as you earn it. A sole proprietor should set aside at their marginal personal rate plus CPP. Keep GST/HST collected in a separate account; that money was never yours.

There is no single definition. For tax the test that matters is the small business deduction: a Canadian-controlled private corporation earning active business income claims the lower rate on the first $500,000 of it for 2026, shared across associated corporations. Federally that limit falls by $5 for every $1 of adjusted aggregate investment income above $50,000 and is gone at $150,000, while Ontario keeps the full $500,000. Grant and lending programs use their own headcount or revenue tests.

No. GST/HST you charge is tax you collect for the government, so a registrant keeps it out of revenue and reports it on the GST/HST return, claiming input tax credits against it. Report your sales net of the tax on your T2125 or T2. If you are not registered you charge no GST/HST, and the tax you pay on your own purchases is simply part of the cost of each deductible expense.

The rate follows the province where the goods are delivered. GST is 5% everywhere, and HST provinces bundle it into one rate: Ontario 13%, Nova Scotia 14% since 1 April 2025, and 15% in New Brunswick, Newfoundland and Labrador and Prince Edward Island. Elsewhere GST applies plus a provincial tax — British Columbia 7%, Saskatchewan 6%, Manitoba 7%, and Quebec 9.975% charged on the pre-GST price. Alberta and the territories have GST only. Basic groceries are zero-rated.

Child support received under the current rules is not taxable to the recipient and not deductible to the payer, so the paying parent carries the tax on that money. Orders and written agreements made before May 1997 can still follow the old treatment, where payments were deductible and taxable, so check the date on the order — and note that a later variation of the child support amount, or a joint election filed by both parents, ends the old treatment from that point and brings the order under the current rules. Spousal support is separate: periodic spousal support under a court order or written agreement is generally deductible to the payer and taxable to the recipient.

A ratepayer is someone who pays municipal rates, meaning property taxes and local utility charges, on property they own or occupy. The municipality sets a rate against assessed value, bills the ratepayer, and funds local services from what it collects; ratepayer associations speak for owners in an area. Property tax is municipal and quite separate from income tax, though on a rental or business property it is generally deductible against that income.

Taxable income starts with total income: employment earnings, business and self-employment income, tips, interest, dividends, the taxable half of capital gains at the 50% inclusion rate for 2025 and 2026, rent, pensions, RRSP withdrawals and most benefits. From that you subtract deductions such as RRSP contributions, union dues, childcare, eligible moving costs and business expenses. What remains is taxable income, and the rates apply to it before credits reduce the tax itself.

MAT stands for Municipal Accommodation Tax, a local levy some Canadian municipalities charge on short-term accommodation such as hotel stays and short-term rentals. The operator collects it and remits it to the city or its tourism partner, which is why it sits as a separate line beside GST or HST on your bill. Rates and what counts as covered accommodation are set municipality by municipality, so check that city's own accommodation tax page.

Fees for elementary and secondary school, including most private school tuition, are not deductible. A portion may still count where the school separates it out: the child care element can qualify as a child care expense, and the religious instruction element is sometimes receipted as a charitable donation. Post-secondary study works differently, with the eligible institution issuing a tuition slip so the student claims a non-refundable credit that can be carried forward or partly transferred to a parent or grandparent.