Introduction
The best time to prepare for a CRA review is before one is initiated. A corporation that maintains clean records, claims expenses that are well-documented, and has a CPA reviewing key risk areas annually is far better positioned — whether an audit never comes, or whether it does.
This article is a practical checklist for incorporated professionals and business owners who want to ensure their corporation's records and positions are defensible.
The Shareholder Loan Account
The shareholder loan account is the single most common audit focus for private corporations. Review the balance at fiscal year end:
Is the balance being repaid within the one-year window?
Are personal expenses being paid by the corporation and posted to the shareholder loan without a repayment plan?
Is the balance growing year over year?
Is there a documented repayment arrangement for any balance that will not be repaid within one year?
A shareholder loan balance that is large, old, and undocumented is a material audit risk. Addressing it in the year it arises — through repayment, salary inclusion, or dividend declaration — is far less costly than addressing it after the CRA raises a section 15(2) assessment.
Vehicle and Home Office Claims
Two of the most scrutinised categories of business expense for private corporations are vehicle costs and home office deductions.
For vehicle claims: Is a contemporaneous mileage logbook being maintained? Does the log record date, destination, and business purpose? Has the percentage of business use been calculated and documented?
For home office claims: Is the home office deduction structured correctly — either as a rental payment from the corporation to the shareholder (with corresponding benefit implications) or as an employment expense with a T2200? Is the calculation of the home office percentage reasonable and supported?
For both: Are personal amounts being cleanly excluded from the corporate claim?
T4, T4A, and Payroll Compliance
Are all employees issued T4 slips by the deadline?
Are contractors paid more than $500 in the year issued T4As?
Are source deductions being remitted on time in every remittance period?
Is the payroll account up to date with no outstanding amounts?
Payroll compliance is an area where the consequences of being wrong are significant — the deemed trust, penalties, and director liability are all in play. A clean payroll record requires year-round attention.
HST Reconciliation
Before the fiscal year is closed, reconcile the HST account:
Does the total HST collected on the income statement match the HST reported on the HST returns for the same period?
Are ITCs being claimed only for business-related HST, with personal amounts excluded?
Has any large purchase or capital asset acquisition been reviewed for its ITC treatment?
An income-HST reconciliation is one of the first things an HST auditor will perform. Preparing it internally before year end identifies discrepancies early.
Inter-Company and Related-Party Transactions
For corporations that are part of a group structure — a professional corporation and a holding company, or a management company arrangement — review the inter-corporate transactions:
Are management fees between related corporations documented by a services agreement and invoiced formally?
Are the fees reasonable relative to the services provided?
Are dividends declared through proper board resolutions?
Are loans between related corporations documented and carrying interest at the prescribed rate (if applicable)?
Related-party transactions that are not formally documented are a common audit adjustment point.
The Corporate Minute Book
As discussed in Article 57, the minute book should be reviewed annually:
Are director resolutions in place for the current year's salary, bonus, and dividend decisions?
Are annual shareholder meeting minutes prepared?
Are the share register and officers/directors register current?
A minute book that is years out of date is a flag in any due diligence or audit context.
The Filing Calendar
Know the key filing and payment dates for your corporation:
T2 return due: six months after fiscal year end
Tax balance due: two months after fiscal year end (three months for qualifying CCPCs)
HST returns and remittances: per assigned filing frequency
Payroll remittances: per assigned remittance frequency
T4/T4A slips: last day of February following the calendar year
Missed deadlines create penalties that are easy to avoid with a maintained filing calendar. Your CPA should be tracking these for you — but confirming them annually is a reasonable step.
When to Speak With a CPA
An annual proactive review — separate from the T2 preparation — is the most efficient way to identify and address compliance gaps before they become material. For growing corporations, this review should encompass the shareholder loan, vehicle and home office claims, HST reconciliation, payroll, and related-party transaction documentation.