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Corporation’s are required to file their tax returns (federal and Alberta) within six months of the corporation’s year-end. Failure to file on time will result in a penalty of 5% of the tax owing plus 1% of the tax owing for each full month that the return is late. (If there is no tax owing then there is no penalty.)
Despite the fact that corporations have six months after year-end to file their tax returns, payment of any tax owing must be made within three months of year-end for most small business corporations. Interest will be charged at the “prescribed rate” which is currently 5% after that. If the corporation was required to make instalments, interest will be charged from the time the instalment was due.
The CRA may determine that your corporation is a personal services business in a situation where your corporation provides services to another corporation (the client corporation) and you personally could be considered to be an employee of the client corporation. This may be the case if all of your corporation’s revenue comes from one client corporation.
The tax effect is quite severe. The only deductions generally allowed to a personal services business are salaries paid to the person who would otherwise be an employee. In addition, the corporation is not eligible for the small business deduction. Instead of paying tax at 14% it would pay tax at 38%.