T1 vs. T2: Understanding Your Tax Returns

In Canada, your tax returns are more than just government filings—they are the “grand summary” of your financial year. Whether you are an employee, a freelancer, or a corporation owner, these documents provide the proof of income required for mortgages, loans, and benefits.

1. The T1 General (Personal Tax Return)

The T1 General (Income Tax and Benefit Return) is the primary document individuals use to file with the Canada Revenue Agency (CRA). It consolidates all income sources, deductions, and credits to determine your final tax standing.

The 5 Key Sections of a T1

  • Identification: Your name, SIN, address, and marital status.

  • Total Income (Line 15000): Every dollar earned from employment, self-employment, rentals, and investments.

  • Net Income (Line 23600): Your income after deductions like RRSP contributions and childcare. This number determines your eligibility for most government benefits.

  • Taxable Income (Line 26000): The amount the CRA applies tax rates to after further specific deductions.

  • Refund or Balance Owing: The final verdict on whether you overpaid or underpaid throughout the year.

2. T1 General vs. Notice of Assessment (NOA)

During a mortgage application, lenders almost always ask for both:

  • T1 General: This is what you (or your accountant) told the government you earned. It provides the details (like business or rental expenses).

  • Notice of Assessment (NOA): This is the government’s official verification. It confirms they agree with your numbers and proves you don’t have outstanding tax debt.

3. The T2 (Corporate Tax Return)

While the T1 is for people, the T2 is for incorporated businesses. Even if your corporation is inactive or a one-person “Personal Service Business,” it is legally required to file a T2 every fiscal year.

Why Mortgage Lenders Review Your T2

If you are incorporated, a lender cannot see your “true” income via a personal T1 alone. They use the T2 package to find:

  • Retained Earnings: Profit the business made but kept in the account. Some lenders allow you to “add back” this profit to help you qualify for a larger mortgage.

  • Business Stability: They check if the company is drowning in debt or if it is healthy enough to sustain your salary.

  • Corporate Liens: They verify the business doesn’t owe back taxes, as CRA corporate debt can “jump ahead” of a bank’s claim on your assets.