T1 vs T2: What Is the Difference?
The T1 is your personal income tax return. The T2 is your corporation's income tax return. If you own an incorporated business, you file both. Here is how they work together.
A T1 is the personal income tax return filed by individuals in Canada. A T2 is the corporate income tax return filed by incorporated businesses. The T1 deadline is April 30 (June 15 for self-employed). The T2 deadline is 6 months after the corporation's fiscal year-end. If you own an incorporated business, you file a T2 for the corporation and a T1 for yourself.
T1 and T2 Are Completely Separate Returns
Your corporation is a separate legal entity. It earns its own income, pays its own tax and files its own return: the T2. You as an individual are a separate taxpayer. You earn salary, dividends, investment income and other personal income and file your own return: the T1. These two returns are connected only when money moves between the corporation and you, typically as salary (reported on your T4) or dividends (reported on your T5).
A sole proprietorship does not file a T2. Business income from an unincorporated business is reported directly on the T1 using Form T2125. Only incorporated businesses (with a corporation number ending in Inc., Ltd. or Corp.) file T2 returns.
T1 vs T2: Side-by-Side Comparison
| Factor | T1 (Personal) | T2 (Corporate) |
|---|---|---|
| Who files | Individuals (Canadian residents) | Incorporated businesses (CCPC, non-CCPC) |
| What is reported | Employment, self-employment, investment, rental, pension, dividend income | Corporate revenue, expenses, net income, taxes payable |
| Filing deadline | April 30 (June 15 if self-employed) | 6 months after fiscal year-end |
| Payment deadline | April 30 | 2 months after year-end (3 months for SBD-eligible CCPCs under $500K) |
| Tax rates (Ontario) | 20.05% to 53.53% progressive | 12.2% (SBD) or 26.5% (general) on active income |
| Fiscal year | Calendar year (Jan 1 to Dec 31) | Any 12-month period chosen at incorporation |
| Financial statements | Not required | Required with every T2 filing |
| GIFI schedules | Not applicable | Required. Maps financial statements to CRA codes. |
| Late-filing penalty | 5% + 1%/month up to 12 months | 5% + 1%/month up to 12 months (10% + 2% if repeat) |
| Filed electronically | NETFILE or EFILE | Mandatory electronic filing for most corporations |
How T1 and T2 Connect for Business Owners
When your corporation pays you salary, the corporation deducts it as an expense on the T2 and you report the T4 income on your T1. When the corporation pays you dividends, the corporation does not deduct it (paid from after-tax profit) and you report the T5 income on your T1. The T4 and T5 slips are the bridge between the two returns.
| Money Movement | T2 Treatment | T1 Treatment |
|---|---|---|
| Salary paid to owner | Deductible expense. Reduces corporate income. | Employment income on T4. Taxed at personal rates. |
| Dividend paid to owner | Not deductible. Paid from after-tax profit. | Dividend income on T5. Grossed up. Dividend tax credit applied. |
| Shareholder loan (withdrawal) | Not an expense. Tracked on balance sheet. | If not repaid within 1 year-end, included in personal income (s.15(2)). |
| Management fees to owner | Deductible if reasonable. Subject to HST. | Business income on T1. Self-employment rules apply. |
Filing Both Is Mandatory: If you own an incorporated business, CRA expects both returns. A missing T2 triggers demands, arbitrary assessments and penalties against the corporation. A missing T1 triggers personal penalties and potential loss of benefits (GST credit, CCB, OAS).
Filing Deadlines at a Glance
| Return | Filing Deadline | Payment Deadline | Late Penalty |
|---|---|---|---|
| T1 (employed) | April 30 | April 30 | 5% + 1%/month |
| T1 (self-employed) | June 15 | April 30 (payment still due) | 5% + 1%/month on balance |
| T2 (Dec 31 year-end) | June 30 | Feb 28 (or Mar 31 if SBD eligible) | 5% + 1%/month (10% + 2% repeat) |
| T2 (other year-end) | 6 months after year-end | 2 months after year-end (3 if SBD) | Same formula |
Key Point: The T2 payment deadline is earlier than the filing deadline. For a December 31 year-end corporation, tax is due February 28 but the return is due June 30. Pay first, file second.
Tax Rates: Personal vs Corporate (Ontario 2026)
| Income Level | T1 Personal Rate (Ontario) | T2 Corporate Rate (Ontario) |
|---|---|---|
| First $55,867 | 20.05% | 12.2% (SBD) |
| $55,867 to $111,733 | 29.65% | 12.2% (SBD) |
| $111,733 to $154,906 | 31.48% | 12.2% (SBD) |
| $154,906 to $220,000 | 33.89% | 12.2% (SBD) |
| $220,000 to $253,414 | 46.41% | 26.5% (general, above $500K) |
| Over $253,414 | 53.53% | 26.5% (general) |
The SBD rate of 12.2% applies to the first $500,000 of active business income for Canadian-controlled private corporations (CCPCs). Income above $500,000 is taxed at 26.5%. This is why keeping corporate income under $500,000 through salary, bonuses or other deductions is a common tax planning strategy. Corporate Tax Planning →
Case Study: New Business Owner Filing T1 Only for 2 Years Without a T2
A Richmond Hill business owner incorporated in 2023 but continued filing only a personal T1, reporting corporate revenue as self-employment income on T2125. No T2 was ever filed. CRA issued a demand to file for the corporation and reassessed the owner personally for unreported dividend income. We filed 2 years of T2 returns with NTR financial statements, corrected the T1s to remove the incorrectly reported self-employment income, reported the proper salary and dividends, and filed penalty relief. Corporate tax owing: $8,400 (versus $22,600 the owner had overpaid personally). Net refund to the owner after corrections: $11,200. Get Started →
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