Your Corporate Playbook – Tax Edition
- Mathieu Mireault-Beaulieu
- Dec 28, 2025
- 39 min read
Updated: 6 days ago
Welcome to the Corporate Playbook.
This playbook was built to cover what business owners actually need to understand from a tax and accounting perspective. It does not matter if you are looking to incorporate or already a seasoned business owner with questions. This playbook is for everyone.
Accounting lives inside tax. Whether you like it or not. That makes it heavy, technical, and sometimes painful — so we broke it into chapters you can move through at your own pace. Links are provided below for quick access.
This is not light reading. It’s meant to be practical, accurate, and grounded in how the system actually works. If this becomes your night-time reading and your phone falls on your face, we are not responsible. We also won’t judge. We might laugh.
If you come across something you think is missing or unclear, reach out. If it matters, we’ll add it.
Happy reading.
Chapter 1 — What a Corporation Actually
Is (and Isn’t)
The Playbook — Corporation in 60 Seconds
A corporation is a separate legal person from you.
It exists to separate business risk, money, and taxes from the individual.
It has its own wallet, own obligations, and own tax return.
Incorporation is not free: legal setup, registration, and ongoing compliance costs.
Limited liability protects against business risks, not unpaid taxes or ignored rules.
Once incorporated, you now deal with two tax systems:
the corporation
you personally
Corporations are taxed differently than individuals.
You are taxed separately when money moves out of the corporation.
Incorporation is a tool, not an automatic tax win.
Everything else in this playbook builds on these rules.
Why People Incorporate (and Why Bob Loves It)
If you are reading this, you are either wondering if you should be incorporating, you just did and want to know more about it, or your neighbour Bob told you it was the best thing in the world.
What Bob did not tell you is that incorporation is not free. There are real costs involved. You will usually need a lawyer, pay registration fees, and yes — an accountant or tax specialist. Incorporation is not a magic switch you flip one afternoon. It is a legal structure, and it comes with responsibilities from day one.
A Corporation Is a Separate Legal Person
At its core, a corporation exists to separate you from the business — legally, financially, and for tax purposes. That separation is the entire reason the system allows corporations to exist in the first place. It creates a distinct box around business activity, risk, and money.
This concept can be hard to grasp at first. A corporation is an entity on its own. It exists like a person, but without a body. Think of it as a ghost — Casper though, because it’s a friendly one. It can earn income, own assets, sign contracts, borrow money, and yes, get into trouble.
Because the corporation is its own “person,” it has its own wallet, its own obligations, and its own tax life. Once incorporated, you are no longer operating as a single financial identity. There is the corporation, and there is you. Keeping that separation clear is critical, and most problems start when people forget that distinction.
Separation Is the Whole Point
Since the corporation is its own entity, it pays its own taxes and can be sued. This is where you often hear, “incorporate to limit your exposure.” That statement is true — but only to a point. Limited liability protects you from business risks, not from everything. It does not protect you from ignoring the rules, unpaid taxes like GST/HST or payroll, or situations where personal guarantees are involved. This is not a law essay, so we’ll keep it simple: in most cases you are protected, but in some cases you are not. If you want the full legal breakdown, that conversation belongs with a lawyer.
Another major shift people underestimate is taxation. Yes, corporations have their own taxes to pay. As a corporation owner, you now deal with two tax systems:
one for the corporation
one for you personally
That means two tax returns, different tax brackets, and different tools depending on where the money sits. If you’ve ever dealt with Quebec taxes, this should feel strangely familiar.
The corporation is taxed one way, and you are taxed another way when money eventually moves out. How and when that happens matters — and we will get into that later in this playbook.
The important takeaway for now is this: incorporation is not automatically better. It is a tool. When used in the right situation, it can be powerful. When used too early, or without understanding the rules, it can be expensive and frustrating. Understanding what a corporation actually is — and what it is not — sets the foundation for everything else that follows.
Chapter 2: Bookkeeping
The Playbook — Bookkeeping in 60 Seconds
Bookkeeping is not optional for a corporation.
Financial statements cannot exist without bookkeeping.
Financial statements are required to file a corporate tax return.
Bookkeeping does not have to be done professionally.
Format doesn’t matter — traceability does.
Messy records increase time, cost, and audit risk.
Bundled expenses raise red flags with the CRA.
Detailed categories matter more than people think.
Annual bookkeeping is better than nothing.
Regular bookkeeping prevents problems instead of explaining them later.
Your Silent Weapon
I’m sure you’re wondering: do I really need bookkeeping? That’s a fair question. Here’s the honest answer:
You definitely need some bookkeeping.
Let me explain.
To prepare a corporate tax return, financial statements are required. There is no shortcut around that. And financial statements only exist if bookkeeping exists in some form.
Does it have to be done professionally? Not necessarily.
Honestly, I don’t care if my clients did their bookkeeping on:
a napkin
Excel
QuickBooks
Xero
with a bookkeeper
or by overpaying a CPA firm to do it
What matters is that the information exists and can be followed.
Some clients ask, “What if I just give you everything and you figure it out?” I can absolutely do that — but your “figure it out” mess comes with my “figure it out” pricing, and your wallet will be the one figuring out the payment.
Organization isn’t about being fancy or perfect. It allows me to work faster, cleaner, and without having to guess what the hell you bought on Amazon at 2:13 AM on a Saturday night.
The real purpose of bookkeeping is simple: to track where the money actually went.
Bookkeeping done once a year is better than nothing — but bookkeeping done regularly prevents problems instead of explaining them later.
Think of bookkeeping as a detailed budget for taxes. Fuel, car repairs, and the purchase of the car all belong in different categories. In your personal budget, you might just write “car.” In bookkeeping, that’s not good enough.
The more detail, the better — at least from a tax perspective.
Some bookkeepers try to cut corners by bundling expenses together. That may look cleaner on the surface, but when it comes time to file taxes, I need to allocate expenses properly according to CRA charts of accounts.
What’s a chart of accounts? Remember those categories? That’s exactly what it is.
When everything is dumped into one oversized category, guess who starts asking questions about why your numbers don’t match industry averages?
Yes — the CRA.
And those audits are never pleasant. I know, because at one point I was the person knocking on your door, asking for explanations and receipts. And if the receipts weren’t there, you already know what happened next: denied.
Bookkeeping isn’t glamorous. It’s a necessary evil. It doesn’t have to be perfect — but done reasonably well, it will save you time, money, and a lot of pain down the road.
Oh — and please don’t use Bob as your bookkeeper. You already know how that ends.
Tax Pro Tip
Having your bookkeeping done by the same firm that files your corporate return should result in a lower tax prep cost.
Why? Because clean, in-house books mean:
fewer inconsistencies
less rework
less validation
fewer surprises at filing time
When the numbers are built properly from day one, the tax return is just execution — not damage control.
That’s how we operate.
Chapter 3 — Salary vs Dividend
The Playbook — Salary vs Dividend in 60 Seconds
You can pay yourself by salary (or bonus) or dividends.
Salary = payroll, CPP, CRA remittances, more oversight.
Dividends = paid only from retained earnings.
No retained earnings = no legal dividend.
Dividends require proper documentation (dividend resolution).
Sloppy dividends are a giant neon sign for an audit.
Taking money without declaring anything goes through the shareholder loan.
If profits exist, a dividend can later clear that loan.
Most owners use a mix, not one or the other.
If dividends dry up, a bonus can be a clean temporary fix (paid within 180 days).
How I Get Paid?
Now we’re getting to the fun part: how you actually pay yourself.
There are two main ways to extract money from your corporation:
Salary (or bonus)
Dividend
Most people think this is a simple “which one is cheaper” question. It’s not. It’s about cash flow, compliance, long-term planning, and audit risk. Let’s break it down properly.
Salary
You already know what a salary is. It’s a periodic payment, just like when you worked for someone else. Bonuses are also considered salary for tax purposes. And no — making a friend at work is not a taxable benefit.
Salary is often chosen because it feels familiar and predictable — but it comes with real overhead and higher friction.
When you pay yourself a salary, the corporation must:
Withhold personal income tax
Withhold CPP contributions
Pay the employer portion of CPP
⚠️ Important clarification - For most owner-managers who control more than 40% of the corporation, EI generally does not apply unless they opt into special EI benefits. CPP, however, is mandatory.
The corporation must then remit these amounts to CRA, either monthly or quarterly depending on your remitter status. Miss a payment or pay late, and CRA can revoke your quarterly privilege and force you into monthly remittances, often with penalties and interest.
Bottom line: Salary offers predictability, but it comes with:
More CRA reporting
Payroll compliance
Higher personal tax compared to dividends
Mandatory CPP contributions
Dividend
A dividend is how a corporation distributes profits to its shareholders.
For a solo shareholder or small corporation, this is essentially a way of pulling profits out of the company — but only if the corporation has retained earnings.
I already know your question — and yes, we’re going there. What are retained earnings?
Retained earnings are the corporation’s accumulated after-tax profits over time. Basically, if you're making a profit, you add it to your retained earnings. You make a loss, it reduces your retained earning. Don't worry, you don't have to calculate this!
Example:
Year 1: Net profit: $50,000→ Retained earnings = $50,000
Year 2: Loss of $20,000→ Retained earnings = $30,000
Year 3: Profit of $100,000→ Retained earnings = $130,000
That $130,000 is what’s available for dividends.
No retained earnings = no legal dividend.
Declaring a Dividend (Yes, There’s Paperwork)
To pay a dividend properly, the corporation must declare it. This is done through a dividend resolution.
At minimum, the resolution should:
Be on corporate letterhead
State the amount of the dividend
Identify who is receiving it
Be dated and signed
That’s it.
Why bother? Because CRA wants it. Without proper documentation, dividends can be challenged, reclassified, or considered illegal.
Think of it this way: would you throw a French fry to a seagull just to see what happens? Same thing with CRA — once something is missing, they start asking what else might be missing.
“But I Took the Money Months Ago…”
Totally normal.
When you take money out of the corporation without declaring a salary or dividend, it goes through your shareholder loan account. For Bobby in the back raising his hand to ask what a shareholder loan is — we’re getting there. Chapter 4.
Example:
January: $10,000 taken
February: $20,000 taken
June: $50,000 taken
Total: $80,000
If the corporation has sufficient retained earnings, you can later pass a dividend resolution — say in July — declaring an $80,000 dividend to clear the shareholder loan.
Clean. Legal. Done.
The Risks of Dividends
Dividends are powerful — but not free of danger.
Dividends are not guaranteed. No retained earnings = no dividend.
Dividends require proper documentation. No resolution = CRA attention.
Dividends are often irregular. Paying the exact same amount every month can increase audit risk if it starts to look like disguised salary, especially when documentation is weak.
Tax Pro Tip: Regular dividends are not illegal, but sloppy, undocumented, salary-like dividends are giant neon sign for audit.
Salary vs Dividend — Side-by-Side
Salary — Advantages
Predictable income
Can be paid even if the corporation is losing money
Creates RRSP contribution room
Helps with mortgage qualification and lender optics
Salary — Disadvantages
Higher personal tax rate
Mandatory CPP (employee + employer portions)
Payroll filings and remittances
More CRA oversight
Dividend — Advantages
Lower personal tax rate due to tax integration
No CPP contributions
Less CRA reporting
Simple cash extraction when profits exist
Dividend — Disadvantages
No retained earnings = no dividend
No RRSP room created
Requires proper corporate documentation
Can trigger personal tax instalments
Tax Pro tip
If you’re operating mostly on dividends and retained earnings dry up, switching temporarily to a bonus can be cleaner than changing your whole payroll structure — as long as it’s done properly and on time. Bonuses are deductible to the corporation but must be paid within 180 days after year-end and trigger full payroll withholdings.
Chapter 4: Shareholder loan
The Playbook — Shareholder Loan in 60 Seconds
Any money you take out without salary or dividend becomes a shareholder loan.
That loan must be cleared within one year after the corporation’s year-end.
Miss that deadline and CRA treats it as personal income.
There are only three ways to clear a shareholder loan:
Dividend
Bonus
Putting money or assets into the corporation
Personal expenses paid by the corporation get reclassified to the shareholder loan.
Audits love this account.
Sloppy shareholder loans = taxable benefits, penalties, and interest.
What Is A Shareholder Loan?
This term might be new to you, something you’ve heard before, vaguely familiar — or you remember Bobby asking about it in the previous chapter.
It’s actually pretty self-explanatory once you understand one thing.
In Chapter 1, we talked about how a corporation is its own entity and has its own wallet.
You own shares in that corporation. That makes you a shareholder. And if you’re reading this, you probably own more than 50% — maybe even 100% — of them.
Now think about this: If a friend lends you money, you owe them, right?
Same logic here.
Since the corporation has its own wallet, any money you take out of it is not “your money” by default. It becomes a loan from the corporation to you. Sorry to burst your bubble, but owning the corporation does not turn the corporate bank account into your personal ATM.
That’s it. That’s the substance of a shareholder loan — and exactly why it’s called that.
Most of the time, shareholders take money out. So the account usually reflects money the shareholder owes the corporation.
The Rule You Cannot Ignore
This is the most important rule you need to know:
Any money taken out of the corporation cannot stay in the shareholder loan account beyond the end of the following fiscal year.
You do not want to mess this up.
This is one of the most audited accounts by the government. You can use it — but you cannot play with it.
And I’ll repeat this for the people in the back chatting:
👉 You CANNOT play with this account without consequences.
Example (Simple and Real)
Let’s assume your corporation’s year-end is December 31.
You take $50,000 out of the corporation in May 2024.
That $50,000 must be cleared from the shareholder loan account by the end of 2025.
In plain English:
The year you take the money out
Plus the following fiscal year
That’s your window.
Tax Pro Tip: Money out → cleared by next fiscal year. That’s it. Remember that and you’ll avoid a lot of pain.
Repayment
Cindy, put the paper bag down. No need to hyperventilate about paying back $50,000 in cash.
There are three — and only three — ways to clear a shareholder loan when the corporation loaned you money (what we call a debit shareholder loan):
Dividend
Bonus
Injecting funds or assets into the corporation
We already covered dividends and bonuses in Chapter 3.
The third option is extremely common, especially when a corporation is new.
When you start a corporation, it usually has no money. The shareholder (you) pays:
incorporation costs
legal fees
startup expenses
That money comes from your wallet, not the corporation’s.
Those amounts go into the shareholder loan as the corporation owing you.
Later, when you take money out, the corporation is often just paying you back what you previously put in.
Example (Accounting Without the Headache)
You:
Inject $1,000 into the corporation
Pay $5,000 of expenses before the corporate credit card exists
Sell your car to the corporation for $10,000 (we’ll cover vehicles in Chapter 5)
Now the corporation has:
$1,000 in cash
$5,000 in expenses
$10,000 in assets
That’s $16,000 total.
For the accounting people: yes, those are debits.
And if there’s one thing to remember about accounting: Debits and credits must balance.
So the shareholder loan is credited $16,000.
Here’s the key rule:
Credit shareholder loan → the corporation owes you
Debit shareholder loan → you owe the corporation
That’s it. That’s the whole thing.
So when you look at your balance sheet and see the shareholder loan:
If it’s credit → you’re fine
If it’s debit at year-end → yeah… clean that up next year
You already see me waving the flag.
For the Smartass in the Room
Thinking:
“What if I just buy personal stuff with the corporate credit card?”
Yeah. No!
If your bookkeeper is doing their job, that expense gets reclassified right where it belongs:
👉 Shareholder loan.
And during an audit, guess who reclassifies your 4:00 a.m. Amazon purchase for your anniversary?
The auditor.
Now that beautiful $25,000 ring is:
a taxable benefit
on your personal return
with penalties
and interest
Congratulations — romance, but you made it taxable and more expensive!
Tax Pro Tip (Read This Twice)
DO NOT mess with your shareholder loan. If you do — I told you so.
Chapter 5 — Vehicle & Automobile Benefits
The Playbook — Vehicle Rules in 60 Seconds
Vehicles are one of the most audited items in corporate taxes.
Ownership doesn’t matter — usage does.
Mileage log is non-negotiable. No log = no deduction.
Commuting to your regular place of work is personal. You won’t win that fight.
Business use = client visits, supplies, airports, business errands.
Personal vehicle is often the cleanest option
Per-kilometre method = simple, audit-friendly, receipts not required.
Corporate vehicles come with real risk
Corporate vehicles only make sense when business use is clearly dominant.
Audit Trap
After shareholder loans, vehicles are the most audited asset in corporate taxes.
I know what you thought: “The corporation will pay for the car and I’ll enjoy it.”
Well… CRA thought about that too.
Two Ways a Vehicle Shows Up in Your Business
You have two options:
Use your personal vehicle for business
Have a corporate vehicle
We’ll cover both — advantages and disadvantages — but before we go anywhere, there is something far more important than ownership.
Mileage Log (Non-Negotiable)
It does not matter whether the car is personal or corporate.
👉 You NEED a mileage log.
Bobby, put the phone down and listen.
A mileage log is non-negotiable. It is the first thing CRA asks for in an audit.
Every. Single. Time.
How do I know? If you skipped ahead or forgot — I’ve been on the other side of the table.
I don’t care if your log is:
Excel
An app
Online tracking software
Paper
Carved in your windows with I's and X's
(Okay, maybe not the last one.)
You need one. Period.
Why CRA Cares So Much
The mileage log proves how the vehicle is actually used.
CRA wants to know:
Business use
Personal use
Or whether you’re just driving something nice because it feels good
You must record:
Mileage at the start of the year
Mileage at the end of the year
That’s how CRA determines the business vs personal percentage.
Let’s Kill the Commute Argument Now
Before we argue:
Driving from home to your regular place of business = PERSONAL
You will not win that one
Same reason employees can’t deduct commuting costs.
However…
If your place of business is your home, then:
travel for business purposes is deductible
visiting clients
buying supplies
business errands
Nothing magical. Same logic, different starting point.
Business Trips People Forget to Log
Here are trips people forget to log — but CRA considers business:
Buying food or snacks for an important client
Picking up office supplies
Travel to the airport for a business trip
Costco supply runs
And please…Put your $976 grocery bill on a separate receipt. I don’t want to scroll through frozen pizzas just to find printer paper.
Tax Pro Tip: If you start your day with a business stop (client, supplies, etc.), the mileage for that business route is business — including the drive to your office afterward. The trip home at the end of the day is still personal. Log each leg.
Using Your Personal Vehicle
Yes, you can absolutely use your personal vehicle. In fact, this is often the cleanest way to claim vehicle expenses.
You have two methods:
Actual expenses
Per-kilometre rate
Actual Expenses
This is where the mileage log becomes critical.
Example:
Starting mileage: 20,000 km
Ending mileage: 30,000 km
Business driving: 4,000 km
Business use = 40% (4,000 ÷ 10,000)
That percentage applies to:
gas
insurance
registration & permits
repairs & maintenance
interest on car loans
rental payments
❌ You cannot claim Capital Cost Allowance (CCA) on a personal vehicle. That only applies when the car is owned by the business.
If you’re not sure what CCA is, it’s simply the tax rules for how assets are depreciated over time. It’s one of those things I worry about so you don’t have to.
Per-Kilometre Method
This is the cleanest, simplest, idiot-proof method. Yes, I said idiot-proof, Bobby — as long as you have your what?
As long as you have a mileage log:
Total business kilometres × reasonable rate
No receipts required
Example:
10,000 business km
$0.50 per km
$5,000 deduction
That’s it.
And no — you cannot charge $10 per kilometre.
The rate must be reasonable.
Want an audit-proof rate? Use the CRA kilometre rates paid to government employees.
If it’s good enough for them, it’s good enough for you.
Current rates:
Historic rates:
How Is This Claimed?
Remember the shareholder loan from Chapter 4?
This is where it shines.
The vehicle expenses are recorded in the business, and your shareholder loan is credited — meaning the corporation owes you.
Tax Pro Tip: You can compare both methods each year and choose the one with the higher deduction. Yes — CRA allows you to change methods yearly.
Corporate Vehicle
You’ve seen it:
“Oh yeah, it’s a company car.”
Looks great. Feels smart.
Often… it isn’t.
Let’s go extreme.
You buy a $500,000 vehicle through the corporation.
CRA only allows $37,000 of capital cost for luxury vehicles before sales tax. The remaining $463,000 is not deductible.
That’s basically personal spending with extra steps.
And we’re not done.
The auditor flags it immediately
The vehicle is rarely 100% business use
A taxable benefit applies
That means:
The corporation pays for the car
You are taxed personally on the benefit
In many cases, when a corporate vehicle is used mostly for personal driving, additional taxable benefits can apply.
The calculation is complex and varies case by case — but the result is simple:
You pay tax on money you never received.
If CRA says your car benefit is $20,000, they treat it as if you received $20,000 in cash.
Now add that to your income.
Congratulations — you just made a car taxable and expensive.
When a Corporate Vehicle Does Make Sense
There are cases where putting a vehicle in the corporation makes sense.
If a vehicle is used more than 90% for business, then a corporate vehicle is often appropriate. Keep in mind: driving to and from your regular place of work is personal, and in real life that commute alone often represents 40–50% of total driving.
That’s why this works best for:
Worksite trucks
Vans carrying tools or equipment
Service vehicles
Branded company cars primarily used to visit clients or for marketing purposes
In those situations, the vehicle is clearly tied to business activity, and the personal-use component is minimal.
Tax Pro Tip
If the vehicle’s use is obviously business-driven and clearly defensible, it can belong in the corporation. If you have to “explain it” or justify it creatively, it probably doesn’t.
Chapter 6 — Meals, Entertainment & Golf
The Playbook — Meals, Entertainment & Golf in 60 Seconds
Meals and entertainment are high-risk audit expenses.
Default rule: 50% deductible.
Travel does not make meals 100%.
Expenses must still be reasonable, even at 50%.
Client entertainment (dinners, shows, museums, events) = 50%.
Golf is basically non-deductible, except for separately billed meals at the club (50%).
Staff events can be 100% deductible.
Per diem can be a clean travel option for employees on payroll.
If you’re not clearly in an exception, assume 50%.
Why This Gets Audited
This is another high-risk audit area. Thankfully, the dollar amounts are usually smaller than other accounts in your business — but that doesn’t stop CRA from checking it routinely.
Meals and entertainment are easy to abuse, easy to misunderstand, and easy for CRA to challenge. That’s exactly why they get attention.
The 50% Rule
CRA does not allow meals and entertainment to be deducted at 100%, whether personally or through a corporation.
The basic rule is simple:
We take the total meals and entertainment amount from your financial statements
We apply a 50% limitation
That’s it.
If you remember only one thing from this chapter, remember this:
If you are not clearly in an exception, assume the expense is only 50% deductible.
Reasonableness Still Matters
Before you plan a $200-per-plate steak dinner, pause.
Even at 50%, the expense must still be reasonable in the circumstances.
CRA does not define “reasonable” with a number. It’s contextual. Factors that matter include:
Time of day (breakfast vs dinner)
Type of establishment
Alcohol consumption (one bottle vs several)
Who you were with
Business context
If you’re confident explaining it to an auditor, you can proceed — but remember: not all auditors have the same tolerance. One may accept your explanation, another may not. If you try to pass your dinner date as a business expense, they will know.
Travel Does NOT Change the Rule
Being on a business trip does not magically turn meals into 100% deductions.
Meals:
At the hotel
At the convention center
At the airport
Your Starbucks coffee
Are still subject to the 50% rule, and still must be reasonable.
Bobby, don’t be disappointed — there is a cleaner option coming.
Exceptions to the 50% Rule
There are exceptions, but they are specific and limited:
Long-haul transportation
Remote or special work sites
Meals sold to customers
Fundraising events (allocation rules apply)
Employer-provided meals at special staff events
If you don’t clearly fall into one of these categories, you’re back at 50%.
Employer-Provided Meals at Special Events
This exception requires employees. Hosting a "staff event" for yourself alone doesn’t qualify — even if you really needed the morale boost.
Examples of qualifying events:
Christmas party
Summer BBQ
Employee recognition event
Key limits:
Must generally be open to all employees
Only 6 events per year qualify for 100%
Feeling Generous? Beyond 6 → remaining events fall back to 50%
Per Diem
Bobby — this is the alternative.
A per diem (Latin for “by the day”, not “make things up”) is a daily allowance used specifically for business travel to cover meals.
And before anyone gets creative:
No — you cannot just pick a number because you’re hungry.
Just like kilometre rates, the amount must be reasonable.
Want a dumb-proof, audit-clean approach?
Use the CRA meal allowance rates paid to government employees. Like I said before, if it’s good enough for them, it’s good enough for you.
Current rates:
Historic rates:
This is conservative, widely accepted, and avoids arguing with an auditor who skipped lunch.
Why per diem works (and why auditors like it)
When properly applied to business travel:
It replaces tracking individual meal receipts
It avoids arguing about “reasonable” steak vs sandwich
It simplifies audits significantly
You still need:
Proof that you were travelling for business and not to your brother-in-law cottage for a fishing trip
You do not need:
Individual meal receipts
Explanations about appetizers
To justify why you ate twice that day
Per diem can be a clean, low-friction method for travel meals. It may still be subject to the 50% limitation unless it falls under a specific exception.
Entertainment
Entertainment follows the same 50% limitation.
This includes:
Museums
Art exhibitions
Cultural events
Concerts
Sporting events
Shows
Theatre
If the purpose is to build or maintain a business relationship, assume 50%.
Classy doesn’t change the rule.
Important caveat: Per diem is an employee allowance. If you’re paid only by dividends and not on payroll, this doesn’t work.
Golf
Golf gets its own category — and not in a good way.
Golf memberships: not deductible
Green fees: not deductible
Client golf outings: not deductible
CRA views golf as primarily personal, not business entertainment.
The only portion typically deductible:
Meals/drinks can be deductible (50%) if separately identified and it’s not packaged into/part of the golf fees. CRA has long treated meals like regular restaurant meals when they’re not tied into the golf charge.
Everything else?
Like your ball landing in the pond — gone.
Tax Pro Tip:
Write on the back of the receipt:
who you met
and the business purpose
If you’re audited, this makes explanations faster, cleaner, and far more professional.
Chapter 7 — Can I deduct this & Home Office
The Playbook — Expense Rules in 60 Seconds
An expense is deductible only if it’s incurred to earn income.
Even then, it must be reasonable.
If you have to convince yourself, CRA will convince you otherwise.
Personal expenses don’t become deductible because you own a corporation.
Mixed-use expenses must be allocated — not fully claimed.
Price doesn’t matter. Purpose does.
If it looks personal first, CRA assumes it is personal.
Documentation matters. Receipts, notes, and pictures win audits.
Home office expenses must be proportional, defensible, and explainable.
If you can’t explain it calmly to an auditor, don’t claim it.
Introduction
Over this chapter, we’re going to review how CRA actually thinks about expenses: what you can deduct, what you can’t, and where people get burned convincing themselves they’re clever.
We’ll also cover home office expenses and how to properly charge them to a corporation.
If you are looking for tricks to claim personal expenses, you are at the wrong place.
Can I Deduct This?
Let’s start with a bit of tax law. I promise this won’t feel like slipping on a banana peel and landing on a cactus.
More like eating ice cream in a park on a sunny day.
Ready?
This is deadly simple:
If the expense is incurred to earn income, it’s deductible.
That’s it.
Did I say it was going to be a stroll in the park or not?
Where People Screw This Up
The problem isn’t the rule. The problem is people trying to claim everything.
They convince themselves an expense is “business-related” when it’s really just something they wanted anyway.
That’s where the second rule comes in:
Is it reasonable?
Reasonableness exists to prevent abuse.
We already touched on this in Chapter 5 (vehicles) and Chapter 6 (meals), and the logic is always the same.
If you try to:
expense a high-end luxury vehicle as a “delivery vehicle”
expense a $3,000 dinner for a basic client meeting
You won’t win those fights.
Hell, if you came to me with that argument, I’d laugh, walk you back to the door, and suggest you come back once reality kicks in.
Same Rule, Different Expense
I don’t care if it’s:
a cellphone
software subscriptions
a building
or cat food
If it’s incurred to earn income and it’s reasonable, it’s deductible.
Just be ready to explain the cat food — and have receipts.
Examples Where Context Matters
Some expenses are normally personal — but can be deductible in specific situations.
Television
An auditor sees a TV in your expenses? Default answer: denied.
But if that television is used at your place of business to:
display pricing
present services
support sales discussions
Then it becomes a business asset, not a personal toy.
Context matters.
Grocery Trips
We brushed on this in Chapter 6, but it deserves repetition.
Groceries are normally personal. However:
food for client meetings
food for staff events
can be deductible.
Now let’s talk reasonableness.
If your grocery bill includes:
a whole turkey
expensive steak cuts
premium wine “for the team”
That’s not going to fly.
No company on the planet serves filet mignon at an employee BBQ. It’s hamburgers and hot dogs.
And if you did cook a turkey for your employees — take pictures.
Gym Equipment
Gym equipment is normally personal.
But if your corporate office includes:
a wellness room
employee-use facilities
Then that equipment becomes deductible.
And if you ever get audited, have pictures ready showing it’s at the office, not sitting in your basement.
Clothing
Now clothing.
This is one of the biggest misconceptions out there.
Think of it like commuting.
Do you need to dress to leave your house?
Yes? Then it’s personal.
If you can wear it in public without looking ridiculous, it’s probably not deductible. Doesn’t matter if the suit costs $10,000. Doesn’t matter if it “impresses clients.” If you can wear it outside of work without looking like a clown, it’s personal.
Exceptions do exist:
uniforms and scrubs (nurses are the easy example — nobody wears scrubs in public unless they just left the hospital)
mascots and costumes
clearly branded uniforms
specialized clothing required for content creation (yes, including spicy content)
And if you somehow negotiated clothing into your contract — congratulations — you may have just created a taxable benefit.
Thread carefully. No pun intended. Well… maybe a little.
As you can see, the rule never changes:
business purpose
reasonable
defensible
Push it too far, and you’ll get caught with your pants down like Bobby.
Home Office
If you work from home — fully or partially — you may be able to claim home office expenses through your corporation.
This part is actually simpler than people think.
If you were self-employed before incorporating, the logic will sound familiar.
Same principles apply. The difference is mechanics.
Instead of deducting directly on a personal return, the corporation records the expenses and credits your shareholder loan.
Skipped Chapter 4? Go back. That one matters.
What Can Be Claimed?
(Non-exhaustive list)
Electricity
Heating
Internet
Home insurance
Mortgage interest
Rent
Home improvements that genuinely affect the office space
Here’s an easy way to think about it:
A rooftop repair because your office is directly underneath and water is leaking? Possibly. Renovating your kitchen because you work from home? No.
If the improvement clearly relates to the workspace, it may be considered. If it benefits the entire home, it’s personal.
How to Keep It Reasonable
You allocate expenses based on:
the square footage of the office
compared to the total home space
If the room is shared, you split it further.
You should always be able to explain:
why the percentage makes sense
how the space is actually used
If you can’t explain it to yourself, you won’t explain it to an auditor.
Tax Pro Tip
Keep documentation and pictures for unusual or aggressive-looking expenses.
Assume they’ll be flagged if audited.
You won’t remember your reasoning two years from now. Write it down. Document it. Do it once — properly. That's what CRA criminal investigation does.
Chapter 8 — GST/HST
GST/HST — 60-Second Playbook
You must register for GST/HST once you exceed $30,000 of gross income on a rolling 12-month basis. There is no year-end reset.
Once the threshold is crossed, you must register and start collecting immediately. Incorporation does not change this.
CRA can backdate your registration. If you failed to charge GST/HST, you may owe it out of pocket.
GST/HST collected is not your money. Misuse, late remittance, or inflated ITCs escalate quickly.
Input Tax Credits (ITCs) reduce what you remit, but only for reasonable, business-related expenses with proper documentation. Disallowed ITCs are repaid with interest and penalties.
Filing and paying are separate obligations. Interest applies to unpaid balances immediately.
Some provinces — Manitoba (RST), Saskatchewan, British Columbia, and Quebec — have separate provincial sales tax systems. GST/HST alone may not be sufficient.
Registering early lowers risk. Learning GST/HST at low volume is manageable. Fixing it later is expensive.
CRA audits GST/HST. They always do.
Introduction
Now we are getting into the not-so-fun part. Paperwork.
The next three chapters will cover your obligations for GST/HST, Payroll, and Tax Instalments. These are not optional topics. This is where mistakes become expensive.
When Do You Need to Register?
This is one of the most crucial concepts to understand.
You are required to register for GST/HST once you exceed $30,000 of gross income. Not net. Not after expenses. Not after taxes. Gross. Bobby, what did I say? Yes Gross Income.
Gross income is everything you earn before expenses.
The $30,000 threshold is not based on a calendar year or your fiscal year. It is based on any rolling 12-month period. There is no reset on January 1st. There is no reset at year-end. CRA looks at your last 12 months at all times.
The month you exceed the $30,000 threshold, you are required to register immediately and start collecting GST/HST right away. This rule applies whether you are self-employed or incorporated. Incorporation does not change your GST/HST obligations.
There is nothing stopping you from registering from day one. That decision is optional. The consequences of delaying are not.
Effective Date and Retroactive Exposure
The effective date of your GST/HST registration matters.
If CRA determines that you should have been registered earlier, they can backdate your registration. If you did not charge GST/HST when you were required to, you may still owe it — out of your own pocket.
This is one of the most expensive mistakes businesses make. You collect the income, spend the money, and later discover you owe GST/HST that was never charged to the client.
ITCs
What is an ITC? It does not stand for Internet Technical Chatbot. It stands for Input Tax Credit.
ITCs reduce the amount of GST/HST you need to remit to the government.
In simple terms, you pay GST/HST on many of your business expenses. Those taxes can be used to offset the GST/HST you collect from your clients.
Example
You collected GST throughout the year and owe $10,000 to the government. You paid $4,000 of GST on supplies, fuel, equipment, merchandise, and other eligible expenses.
You remit $6,000 ($10,000 − $4,000).
In years where expenses are high and revenue is low, you may even end up with a refund.
However, ITCs are not automatic. To claim them:
The expense must be business-related
The amount must be reasonable
Proper documentation is required
If CRA disallows an ITC during an audit, you repay it, plus interest and penalties.
Early Registration — Why It Matters
Registering early allows you to recover ITCs immediately instead of leaving money on the table.
It also protects you from retroactive exposure if your revenue grows faster than expected.
Many businesses delay registration to “keep things simple” and later discover they owe GST/HST on income they already spent.
Early registration is optional. The cost of waiting can be permanent.
How to Register
Once you exceed the $30,000 threshold — or decide to register early — you must obtain a GST/HST number.
You can register:
Online through CRA’s Business Registration Online
By phone
Through your My CRA Business Account
Filing vs Paying
Filing your GST/HST return and paying your GST/HST balance are two separate obligations.
You can file on time and still be late on payment. Interest starts accumulating immediately on unpaid balances, even if the return itself was filed on time.
CRA does not treat “I filed” and “I paid” the same way.
Reporting Periods
Your reporting frequency depends on your revenue:
Under $1.5 million → Annual filing minimum
$1.5 million to $6 million → Quarterly minimum
Over $6 million → Monthly
Nothing prevents you from filing more frequently. Some businesses prefer quarterly filings to manage cash flow and simplify tracking. Filing earlier can also mean receiving ITC refunds faster, which matters during heavy-expense periods.
Filing Deadlines
You generally have one month after the end of your reporting period to file your GST/HST return. Missing deadlines leads to interest and penalties. This applies regardless of whether you owe money or are expecting a refund.
Reporting Frequency | Reporting Period Ends | Filing Deadline |
Annual | December 31 | January 31 |
Annual | June 30 | July 31 |
Quarterly | March 31 | April 30 |
Quarterly | September 30 | October 31 |
Monthly | May 31 | June 30 |
Monthly | November 30 | December 31 |
Provincial Sales Tax Considerations
GST/HST is a federal tax, but some provinces still administer their own provincial sales taxes, with separate registration, reporting, and audit processes.
Manitoba (RST), Saskatchewan, British Columbia, and Quebec operate outside the GST/HST system for their provincial portion. GST/HST registration does not automatically cover provincial sales tax in these provinces.
If you operate or sell in these provinces, you must confirm whether separate registration and filings are required. Assuming GST/HST alone is sufficient is a common and costly mistake.
Don’t Even Think About It
The GST/HST you collect is not your money. You are holding it on behalf of the government.
Do not use it. Do not delay remittance. Do not inflate ITCs.
CRA audits GST/HST. They always do. If they find inadmissible expenses or missing documentation, the ITCs are reversed. If the balance becomes large enough and remains unpaid, CRA has the authority to escalate collection actions quickly — including freezing accounts.
GST/HST is treated differently than income tax because the money was never yours.
Tax Pro Tip
1. Proper bookkeeping matters
Proper bookkeeping allows you to see exactly what you owe and exactly what you can claim — in real time.
And if we are your bookkeeper, we can also file the GST/HST return for you.
2. Register early to reduce risk
Registering for GST/HST from the start makes it easier to understand the mechanics while invoice volume is low.
Waiting until your business is growing increases complexity and increases the risk of mistakes.
Chapter 9 — Payroll
The Playbook — Payroll in 60 Seconds
Payroll is mandatory the moment salary or bonuses are paid
Owner-managers are not exempt
Payroll deductions are trust money, not operating cash
Quarterly remitting is a privilege, not a right
CPP is mandatory for owner-managers
Payroll mistakes escalate faster than income tax
Directors can be personally liable
Ignoring payroll always costs more later
Why Would I Need Payroll If I’m the Only One Working?
I already know what you’re thinking.
“Why would I need payroll if I’m the only one working in the corporation?”
If you remember Chapter 1, the corporation and you are two separate legal entities. That separation is not optional — and payroll is one of the places where it becomes very real.
Unless you are taking dividends only, the moment you pay yourself a salary or a bonus, payroll becomes mandatory.
There is no workaround.
Salary and bonuses can only be paid legally through payroll. That’s it.
Yes, you can temporarily take money through your shareholder loan. But as explained in Chapter 4, if that loan is not cleared on time, it becomes a taxable benefit.
And what are taxable benefits linked to?
👉 Payroll.
You got it, Bobby.
Employees
If you have employees, payroll is no longer just about you.
You must:
pay employees on time
calculate payroll correctly
remit deductions to CRA on time
Payroll is not something you “catch up on later.” Once payroll exists, CRA expects ongoing compliance.
The frequency of your remittances — monthly or quarterly — depends on the amount of total payroll withholdings, not on how many employees you have.
Quarterly vs Monthly Remitting
Quarterly Remitting
Quarterly remitting is a privilege, not a default.
To qualify:
Total monthly withholdings must be $3,000 or less
Your compliance history must be clean
CRA must allow it
Miss a payment. Miscalculate amounts. File late.
CRA doesn’t argue. They simply remove the privilege.
As a rough rule of thumb, once gross salary approaches $6,000 per month, most owner-managers will exceed the $3,000 withholding threshold and lose quarterly status.
Think of quarterly remitting as a test run when you start your corporation. It gives you time to get used to the calculations and remittances — until CRA decides to remove the training wheels — without your approval.
Monthly Remitting
This is where most small and medium businesses live.
Monthly remitting applies when:
Withholdings exceed $3,000
Or quarterly status has been revoked
Monthly remitters can go up to $25,000 of total monthly withholdings before entering accelerated remitting.
To put that in perspective, at around $50,000 of wages in a month, payroll turns into paperwork every two weeks.
Accelerated Remitting
Once withholdings exceed $25,000 per month, CRA requires more frequent remittances.
At that point, payroll becomes a cash-flow management exercise, not an accounting task.
If you’re here, you already know it.
What Are Payroll Withholdings?
Payroll withholdings include:
CPP — Employee portion
CPP — Employer portion
EI — Employee portion (if applicable)
EI — Employer portion (if applicable)
Income tax withheld on salaries
For most owner-managers:
CPP always applies
EI usually does not, unless you opted in
This is where many people get surprised.
Owner-managers pay both sides of CPP. There is no discount for owning the company — it’s the same as being self-employed, the cost just moves places.
Payroll Is Trust Money
Payroll deductions are not treated like regular income tax.
They are considered trust funds.
That means:
The money already belongs to the government and employees
The corporation is merely holding it
Using it for cash flow is not a delay — it’s a violation
This is why payroll is treated more harshly than most other tax obligations.
Responsibility
Remember limited liability from Chapter 1?
Payroll is one of the major exceptions.
Directors can be held personally responsible for:
unpaid payroll deductions
unpaid CPP
unpaid EI
unpaid employee wages
Yes — personally.
Payroll is one of the fastest ways for CRA to step past the corporation and deal directly with
you.
How Payroll Penalties Actually Happen
There is no dramatic confrontation.
CRA does not call to negotiate.
What usually happens is much simpler.
You receive an unwanted but very official letter that says, in effect:
“You failed to meet your payroll obligations. Here is your debt to pay.”
Interest applies. Penalties apply. And the clock has already been running.
This is why payroll “comes back worse” when ignored. The system is automatic, and it does not care about intent.
Why Ignoring Payroll Always Gets Expensive
Payroll issues follow a very predictable pattern:
It starts small
It gets delayed
Amounts accumulate
CRA recalculates everything
Directors get pulled in
By the time people react, the damage is already done.
The Mature View of Payroll
Payroll is not complicated.
It is predictable, mechanical, and boring — when done properly.
It becomes painful only when:
ignored
delayed
underestimated
or used as a cash-flow crutch
Handled correctly, payroll is just another process.
Handled poorly, it becomes personal.
Tax Pro Tip
Payroll is not something you can afford to fall behind on. If you feel you’re slipping, hire a professional to take it off your plate immediately.
Chapter 10 — Instalments
The Playbook — Instalments in 60 Seconds
Instalments are advance payments of income tax
They are not penalties and not optional
CRA asks for them once you’ve owed tax before
The trigger is usually around $3,000 of tax payable
Instalments apply to corporations and individuals
You can owe corporate instalments and personal instalments at the same time
CRA calculates instalments using past years, not your current reality
Instalments hurt cash flow, not profitability
Skip or underpay → interest and penalties
Blindly overpay → cash stuck with CRA
What Are Instalments?
By now, you should be seeing a pattern.
Remittances for payroll. Remittances for GST/HST. And now — income tax instalments.
Different name, same idea: paying the government before year-end.
Tax instalments are advance payments of income tax.
They are not penalties. They are not extra tax. They are simply CRA saying:
“You owed tax before. We expect you’ll owe it again.”
Instalments exist to remove uncertainty — for CRA.
When Instalments Start
Instalments don’t appear out of nowhere.
They only start after CRA has tax history to work with. In practice, that means after at least one assessed return — and usually once a pattern is established.
Once CRA sees that tax payable repeats, instalments enter the picture. The amounts are then adjusted as future returns are filed.
Think of instalments the same way you think of payroll withholdings.
If you are salaried, your employer withholds income tax every paycheck based on what they expect you’ll owe for the year.
Instalments work the same way — except now you (or your corporation) are the one doing the prepaying.
Instalments Are Not Just for Corporations
This is where people get caught off guard.
Instalments apply to:
Corporations
Self-employed individuals
Dividend-heavy owner-managers
Rental income earners
Investment-heavy taxpayers
That means you can end up with two instalment obligations at the same time:
One for the corporation
One personally
This is extremely common for owners who pay themselves mostly by dividends.
Same owner. Same business. Two instalment schedules.
The Trigger
The trigger is generally around $3,000 of tax payable.
CRA looks at prior years and determines whether there is a pattern. Once instalments apply, you don’t get a phone call or a discussion.
You get a letter.
Yes Bobby — that letter.
How CRA Calculates Instalments
CRA allows instalments to be calculated based on:
Prior-year tax
Last-year tax
An estimate of the current year
CRA strongly encourages using past-year numbers because it’s safer for them.
The problem? Instalments are backward-looking. They assume:
Same income
Same profitability
Same reality
Which brings us to the real issue.
The Timing Problem
Instalments are about timing, not fairness.
If you have a bad year after a good one, instalments don’t adjust in real time. CRA still wants money upfront, based on what you made before.
Think of a salaried employee who works half the year, overpays income tax, and waits until filing season to get a refund.
Same concept — except now it’s your business cash flow taking the hit.
CRA is like a casino.
The house always wins — eventually.
Why Instalments Hurt Cash Flow
Paying tax in advance means less money available for:
Operations
Growth
Payroll
GST/HST
Real expenses that exist now
If you skip or underpay instalments, interest and penalties apply.
If you blindly follow CRA’s suggested amounts, you may massively overpay and wait months to get your money back.
You pay one way or the other.
Why Instalments Feel Like Punishment
Because they’re front-loaded.
You pay before profits are final. You pay based on old data. You carry the cash-flow burden.
Instalments are adjusted only after returns are filed. Good years push them up. Bad years reduce them — later.
This is why instalments deserve their own chapter. They quietly drain businesses without audits, drama, or warning.
The Mature Way to Handle Instalments
Instalments are not something you “set and forget”.
They should be:
Reviewed annually
Adjusted when income changes
Aligned with reality, not optimism or fear
Handled properly, instalments are boring.
Handled poorly, they become expensive.
Tax Pro Tip
Make sure you’re paying the correct instalment amounts. Always review CRA’s instalment notices for the year ahead. Paying too much hurts cash flow. Paying too little creates interest. Both are avoidable.
Bonus Chapter - Audit defense
The Playbook — Audit Defense in 60 Seconds
For this one, skimming won’t work.
If you want proper audit defense, you need to read the entire chapter.
Everything here is interconnected. Miss one piece, and the rest weakens.
Congratulations on reaching the last chapter.
If you’re wondering why I even bothered writing about audit defense, it’s simple: this is first-hand experience. I used to be an auditor auditing corporations. Basically — people like you.
Audit defense matters because the last thing you want to do is hand an auditor a messy, disorganized file. When you do that, you’re not just slowing things down — you’re giving them more work. And when auditors see more work, the thought that follows is always the same:
“Maybe there’s something to hide.”
That’s how small audits turn into big ones.
What Audit Defense Is
Let’s get one thing clear.
Audit defense is not me giving you shortcuts to cheat. It’s not tricks. It’s not games.
Audit defense is the same philosophy you’ve seen in Chapters 5 to 7: handling accounts properly so that when they’re audited, the auditor looks at your file and thinks:
“This is clean.”
That’s it. That’s the goal.
“I Haven’t Been Audited in Years” — Famous Last Words
If you think you’re safe because it’s been a few years since your last audit, let me be very clear:
It’s coming.
GST/HST is the most common audit. Usually they ask for a sample of invoices, verify accuracy, and if things are clean, they leave you alone.
Payroll and Income Tax are less frequent — but they’re more thorough.
Payroll audits make sure everything is up to standard. Income tax audits are a different ball game entirely.
For income tax, auditors already have your financial statements from your corporate return. They flag accounts, request your General Ledger, and then start spot-checking transactions.
Anything that looks weird or out of the ordinary?
Guess which receipts they’re asking for.
Audits Escalate
Here’s something most people don’t understand.
If GST finds problems, they can refer the file to Income Tax — and vice versa. And even if you “get through” an audit, that’s not always the end.
Three years later, Income Tax may come back to see if you fixed the issues or if you’re still pushing your luck.
If the first audit is clean, you can easily go 10 years without another income tax audit.
If they find problems? They start wondering what else is there.
That’s when a quick audit turns into a long, demanding one with tight deadlines and constant document requests.
How Audits Actually Work
The process is usually straightforward.
You’re contacted and told CRA is auditing GST/HST, Payroll, or Income Tax. Sometimes they’ll ask to visit your place of business to better understand what you do.
They already have your financial statements. They request your General Ledger. They select a sample of transactions and check them for compliance.
If everything checks out, you receive a closing letter and move on with your life.
If you don’t want to deal with them directly, you are absolutely allowed to send them to your accountant or tax professional.
That’s often the smartest move.
A Quote That Says Everything
Here’s something a business owner once told me during an audit:
“I love when you guys come here. I get a free audit to see if my accountant is doing his job properly.”
Let that sink in for a minute — because they were right.
If your accountant or tax professional is competent, an audit shouldn’t uncover anything major. It should be clean.
Auditors Are Human
Auditors don’t all think the same way.
They don’t have the same tolerance levels, interpretations, or thresholds. Something in a gray zone might be accepted by one auditor and rejected by another.
But here’s the key part:
If your bookkeeping is messy, you have inadmissible expenses, or undeclared income, your gray areas are going straight to the denied side.
If your books are clean and most deductions are clearly valid, auditors are far more likely to accept a gray area or give you a warning instead of an adjustment.
Credibility matters.
How Far Back They Look
Normally, CRA’s reassessment window is limited.
For individuals and CCPCs, it is 3 years from the date of filing.
That’s the rule when everything is clean.
But in cases of gross negligence or misrepresentation, CRA can go back much further.
In practice, that often means 6 to 7 years — because that’s the period records are required to be kept from the moment of filing, including records held by financial institutions.
And gross negligence penalties?
50% of the tax owing, plus interest.
I’ve applied them many times.
The criteria are clear:
large amounts
repetitive behavior
knowledge of what was happening
This isn’t a slap on the wrist.
It’s financial damage.
That’s why audit defense is long-term.
You’re not protecting one year — you’re protecting a timeline.
Net Worth Analysis
Now let’s talk about the crowd that loves cash and underreporting income.
Did you know CRA has access to databases for:
vehicle registrations
real estate purchases
cross-border information, including the U.S.
So when your corporation reports $50,000 of income, pays $10,000 in dividends, and you live in a million-dollar house… questions get asked.
This is where Net Worth Analysis comes in.
CRA calculates how much income your household would need to support your lifestyle. If the math doesn’t work, they start digging — often going back years.
And guess which penalty is applied for that? Yeah gross negligence.
Representation
Auditors are usually professional and reasonable.
But audits involve accounting and tax concepts. If you feel you’re in over your head, you are not obligated to answer questions directly as long as you have a representative.
Why does this matter?
Because if you misunderstand a question and answer incorrectly, the auditor makes decisions based on your words.
That’s not dishonesty. That’s risk.
Sometimes the smartest answer is letting your representative respond.
Income, Expenses, and the Magic Word
Income is simple.
Anything that hits your bank account or is received in cash must be recorded.
Expenses are where people get creative — and burned.
Yes, expenses must be tied to the business. But the word you need to tattoo on your brain is:
Reasonable. Let's say it again for the people in the back.
R.e.a.s.o.n.a.b.l.e.
Examples of what not to do:
Using a $10/km vehicle rate instead of government rates
$10,000 New Year’s Eve “client dinners”
Claiming your child’s wedding through the corporation (I saw that one!)
Expensing your full Costco grocery run
Claiming 50% of your home as a home office when it’s really 15%
Saying your Rolls-Royce is a delivery vehicle instead of using a van
You think CRA is stupid?
They know abuse exists. That’s why audits exist. It may take time, but when people get caught, penalties stack over multiple years — and repeat audits follow.
Documents
You have reasonable expenses tied to the business. Great.
Now comes the fun part.
You need to keep ALL invoices.
Paper. USB stick. Computer. Google Drive. Even a floppy disk (if you don’t know what that is, I’m old and you’re young — Google it).
Because here’s the rule that matters most in an audit:
👉 The burden of proof is on the taxpayer.
No receipt? No expense. No deduction. More tax.
Organization matters more than people think.
Pre-Audit vs Reaction
Audit defense happens before the audit.
If you’re panicking after CRA contacts you, you’re not defending — you’re reacting.
Proper audit defense means providing CRA with a file that looks like a gift: clean, organized, explained, and ready.
And here’s another uncomfortable truth:
Not all accountants and tax shops are viewed the same by CRA. Some are known for being aggressive. Their clients get audited more often.
Your choices matter — even before CRA ever looks at your file.
Audit Defense in Practice
Audit defense isn’t one trick. It’s everything you’ve read so far, applied consistently.
Here’s how we apply it:
Bookkeeping done properly, detailed, and transaction-by-transaction
All sources of income declared
Expenses recorded when reasonable and business-related
Chart of accounts aligned with CRA standards
High-risk accounts flagged and handled conservatively
Shareholder loan used properly for personal transactions and cleared on time
Financials explained so you can make better decisions going forward
Final Thought
If you’ve read every chapter, congratulations — that was a lot.
You may have noticed something by now: every chapter is actually a layer of audit protection.
Reasonable. Organization. Bookkeeping.
These aren’t just accounting concepts — they’re shields.
If you have to remember anything about this playbook, remember these 3 words.
***This playbook is based on personal professional experience and is intended to provide an understanding of tax mechanics, accounting principles, and common best practices. Every situation is different, and professional advice may be required depending on the circumstances.***
Comments