Tax Returns vs. Annual Returns: How Are They Different?

At Ownr, while our bread and butter is business registration, our platform can support entrepreneurs at all stages of their journey. Once you’ve registered your business, you’ll be able to find a whole host of Ownr features that can help you manage and grow your company.

Incorporating your business comes with a few perks, including potential tax benefits and liability protection. But there are responsibilities that come with having a corporation too, and we’re here to make those easier to manage.

To start, most entrepreneurs believe the corporate tax return is the only annual compliance item required for a corporation. But it’s not! There’s another, equally mandatory, filing to remember, and in most Canadian provinces it’s referred to as the Annual Return. The Tax Return and Annual Return may sound similar, but they’re actually different requirements that you’ll submit to separate government agencies.

Your responsibilities based on your business structure

As a sole proprietor, your business isn’t a separate legal entity from yourself, so, when tax season rolls around, you don’t have to file separate tax returns for your business and yourself.

As a corporation, a separate Corporate Tax Returns does have to be submitted each year, declaring to the CRA (Canada Revenue Agency) how much taxable income a corporation earned that year. Your corporate tax return is filed at your company’s fiscal year end, which, for most companies, is the end of the calendar year. To put it simply, the Tax Return informs the CRA of your corporation’s financial position.

In addition to the Tax Return, Corporations are responsible for filing an Annual Return, which informs the government of the legal status of your corporation and confirms this information on the public registry. Your Annual Return is filed on the anniversary of the date on which you incorporated.

The Annual Return confirms that the shareholders and directors have held meetings or prepared the legally-required written resolutions for the previous year. A written resolution is a record of decisions that is signed by all of the members who are entitled to vote, like your company’s shareholder(s).

Once complete, the Annual Return is submitted to either the federal or provincial government, depending on your jurisdiction, which you can easily identify in your Ownr Dashboard under Company Info in the Organization Tab.

Regardless of the size of your business, through both tax and legal filings, you have to show that your corporation is still operational. These reporting responsibilities are your end of the bargain for the perks that come with incorporating, and failing to keep up to date with them can result in losing your company, and expensive legal fees.

Understanding Your Annual Return Obligations

Your Annual Return will commonly be a two-step process: first your Shareholders and Directors sign Shareholder, Director and Auditor Resolutions, acknowledging important things such as:

Whether a Shareholder Meeting has occurred and been recorded.
Whether there have been any changes to the Directors of corporation or the corporation’s legal address.
Whether an auditor has been appointed to the business for this year.

If you incorporate directly through the government, you’ll have to use the services of a professional lawyer to draw up these resolutions. For your business to be in good legal standing, it is required to have these resolutions prepared.

Ownr simplifies this process. In your Dashboard we’ll ask you a few simple questions, and prepare the accompanying resolutions based on your answers. We can also obtain signatures from your Shareholder(s) and Director(s), and automatically updates your Minute Book with the required resolutions.

The second step is to file the Annual Return document with the government. Ownr saves you time and money by completing both the resolutions, and the government filing on your behalf—so you can complete everything in one place; your Ownr Dashboard. Here are some common questions about the Annual Return:

Do I have to file an Annual Return?

The simple answer is, yes. You will need to take some time out from celebrating the anniversary of your corporation to file your annual return to inform the government that you intend to keep the legal status of your company “Active”.

What do I need to file an annual return?

You need the following to file an annual return for a corporation:

The date of your last annual meeting and the meeting minutes.
Whether your corporation type is distributing or non-distributing. This refers to whether or not your corporation sells shares to the public. Distributing corporations sell shares to the public. Most small businesses are non-distributing, meaning they do not sell shares to the public.
To be a director of the corporation, an officer, or authorized individual with relevant knowledge of the corporation who has been authorized by the directors.
Ensure all your company information on Ownr is up to date.

Do I still have to file an annual return if my corporation isn’t currently operational?

Being operational can mean several different things, but the simplest way to think of it is if you would like to keep the legal status of your corporation as “active”, you must file an annual return with the government, as well as preparing the accompanying resolutions for your corporation’s Minute Book. This is true even if you’re not fully operational yet.

You can find the status of your corporation using the Corporations Canada database. Even if you haven’t made any money, you need to file your Annual Return to keep your business active. If circumstances have changed, and you want to dissolve your corporation, you can follow the Government of Canada’s guide on dissolving a business corporation.

How can Ownr help with my annual return filing obligations?

Annual Returns are just one of the filings Ownr can help you with. For example, part of your Annual Return is a record of your annual shareholder and director meetings—while larger corporations may hold these meetings, we know that small businesses usually choose to have them by way of a written resolution.

These resolutions are prepared to accompany your Annual Return and are stored in your corporate minute book, which is required by law to keep your company compliant. They have to adhere to a specific format to ensure they meet the requirements of an annual meeting which is why they are traditionally prepared through the services of a lawyer – disclaimer, the bills can rack up! With Ownr, you can indicate whether or not your business has held shareholder and director meetings, and our smart technology will prepare your resolutions properly based on the information you provide, all as part of your annual subscription fee.

What happens if we don’t hold an annual meeting of shareholders?

The CBCA (Canada Business Corporations Act) and the equivalent legislation in each province requires all corporations hold at least one annual meeting of shareholders each year. At the meeting, the shareholders should:

Consider the financial statements of the corporation.
Consider the auditor’s report, if there is one.
Appoint the auditor, if required.
Elect directors, if required.

However, many small corporations have only one or a few shareholders. In this case, it may be more practical for the shareholders to prepare a dated written resolution rather than to hold a formal meeting. The written resolution is signed by all of the shareholders who are entitled to vote and is a record of the decisions made by the group. This must be indicated on your annual return instead of a record of a formal meeting.

Do I need to hire an auditor?

Technically, corporations are required to hire an auditor each year. This can be very costly and, for most small businesses, unnecessary. There is an option to waive this requirement if all shareholders unanimously sign a resolution agreeing to do so. Ownr can help by preparing these resolutions for your minute book, which is legally required by all corporations in Canada.

Ownr can prepare the following important resolutions for your annual return on your behalf, and add them to your minute book:

Your annual shareholder resolution.
Your annual director resolution.
Your annual waiver of auditor resolution.

This will ensure that your annual return is legally compliant, protecting your business.

What happens if I don’t file an annual return?

Failing to file an annual return can put you at risk of losing your business. Your corporation won’t be able to receive certificates of compliance or existence, which are often required to support loan requests or to provide assurance to potential suppliers and buyers that your corporation actually exists.

Separately, the status of your annual return in the public federal corporations database will be listed as overdue, rendering the corporation non-compliant.

In the worst-case scenario, the corporation may be dissolved if it fails to file its annual returns. As a director of a corporation, you have a legal obligation to keep your corporate information up to date through the regular annual return filings. If you don’t file, the Government of Canada can assume that your corporation is no longer operational and can take steps to dissolve it or end its legal existence. The dissolution of a corporation can result in not being able to legally conduct business.

With an annual subscription, Ownr helps you meet your annual return filing obligations for as little as $199 per year on our basic plan.

What do I need to do to prepare for my annual return?

With an Ownr subscription, there are just a few things you need to do to make sure your Annual Return is filed correctly.

Make sure your office address is correct. If you moved in the past year, update your address on Ownr.
Check if the information from your Ownr profile needs to be updated. This should be kept up to date because it’s public information.
Make any necessary changes to your list of directors. Just follow these instructions if you need to add, remove, or edit a director.

Are there any fees to file an annual return?

Every jurisdiction charges a filing fee. For example, federal corporations pay a $12 filing fee. The fee charged by the jurisdiction in which you file will be charged directly on Ownr when you complete your annual return filing on the Dashboard.

What’s the benefit of using Ownr?

Many small businesses find the legal obligations of incorporating intimidating, but they don’t have to be. As part of your subscription, you can stay on top of your obligations using a self-serve, easy-to-use, and less expensive platform compared to traditional options, such as the services of a lawyer. You can pay your government filing fee, manage your minute book, generate your relevant resolutions, and have your annual return processed all in one platform that you can access 24/7.

Government Filing Fees vs. Service Fees

Each government agency charges a different filing fee to complete the Annual Return filing. For example, Federal Corporations pay a $12 filing fee to the government. Service fees on the other hand, are generally associated with the preparation of the required resolutions by a professional, or by a legal software service like Ownr.

As you learned earlier, the government doesn’t prepare the resolutions you’ll need for your Annual Return. The Annual Return is commonly completed through the services of a lawyer as the resolutions are prepared based on the corporation’s specific situation.

Most business owners prefer to complete the government filing form online and simply pay the government filing fee, but are left with a non-compliant Annual Return. That’s why you’ll see these two fees charged to your Ownr account, as we help you keep your business 100% compliant.

Understanding your Corporate Tax Return

All resident corporations, including non-profit organizations, tax-exempt corporations, and inactive corporations, have to file a corporate income tax return, also known as a T2, every year. This tax return must be filed even if a corporation has no tax payable. This is a separate form from your personal income tax return, and separate from your corporation’s Annual Return.

Separately, you’ll need to file a GST/HST return. This is a declaration of the GST/HST you collected that needs to be remitted back to the government.

How can Ownr help?

Corporate income tax returns should be prepared by a professional to ensure you declare everything properly and maximize your potential savings. While Ownr doesn’t file your tax return on your behalf, we do have a partner that can help you. H&R Block offers Ownr customers $100 off of your T2 corporate tax preparation fee.

Conclusion

Staying on top of your corporate filing requirements is essential, but it doesn’t have to be a headache. Ownr can help you manage these important legal requirements easily, so you can focus on growing your business.