In over 24 years of working with small and medium-sized businesses across the Edmonton area, the Nguyen Scott LLP team has seen the same errors come up repeatedly — across industries, business sizes, and types. Most are entirely preventable. Here are the seven that matter most.
- Mixing Personal and Business Expenses
Running personal purchases through a corporation is one of the most audited areas in owner-managed business taxation. The CRA treats personal benefits received through a corporation as a shareholder benefit — taxable income to the shareholder, not a deductible expense of the business.
Common examples include personal vehicle use charged to the corporation, home renovations expensed as business improvements, personal travel mixed with business travel without proper documentation, and personal meals and entertainment without a clear business purpose recorded.
The practical solution: maintain a business bank account used exclusively for business transactions. Document every mixed-use expense with a clear business purpose at the time it occurs.
Source: Canada Revenue Agency. Shareholder benefits. canada.ca
- Misclassifying Employees as Independent Contractors
The CRA applies its own tests to determine whether a working relationship is employment or self-employment, regardless of what the parties call it. The primary factors considered include the degree of control the payer has over the work, whether the worker owns their tools, whether the worker has a risk of loss, and whether the worker can subcontract the work.
Misclassifying an employee as an independent contractor means the business has failed to deduct and remit source deductions (income tax, CPP, EI). If the CRA reclassifies the relationship, the business is liable for the employer’s share of CPP and EI going back to the start of the misclassified relationship, plus interest and penalties.
Source: Canada Revenue Agency. Employee or self-employed? canada.ca
- Missing Instalment Payment Deadlines
Corporate tax instalments are due monthly (or quarterly for eligible small CCPCs) throughout the tax year. Many business owners pay attention to the annual balance owing at filing time but overlook instalment obligations during the year. The CRA charges instalment interest on shortfalls, assessed even if the full balance is paid at year-end.
Source: Canada Revenue Agency. Corporation instalment payments. canada.ca
- Claiming Capital Expenditures as Operating Expenses
The CRA distinguishes between current expenses (fully deductible in the year incurred) and capital expenditures (deducted over time through Capital Cost Allowance). Replacing a broken furnace component is a repair — deductible immediately. Replacing the entire furnace is a capital expenditure — added to a CCA class and deducted over time. Claiming a capital expenditure as a current expense inflates your deductions and is commonly challenged in audits.
Source: Canada Revenue Agency. Current vs. capital expenses. canada.ca
- Inadequate Record Keeping
The CRA requires businesses to retain records for six years from the end of the last tax year to which they relate. Businesses that rely on bank statement summaries without underlying receipts, that do not maintain mileage logs for vehicle claims, or that discard records after two or three years are exposed in an audit. The CRA can disallow deductions for which adequate documentation cannot be produced, regardless of whether the expense was legitimate.
Source: Canada Revenue Agency. Record keeping for businesses. canada.ca
- Not Understanding the Associated Corporation Rules
If your corporation is associated with one or more other corporations, the $500,000 small business deduction limit must be shared across all associated corporations — it is not $500,000 per corporation. The CRA applies a broad definition of association: corporations controlled by the same person or related group are associated. Applying the small business deduction incorrectly across associated corporations results in reassessments that can be costly.
Source: Canada Revenue Agency. Associated corporations. canada.ca
- Filing the T2 on Time but Paying Late
Many business owners focus on the six-month T2 filing deadline and overlook the fact that the payment deadline is earlier — typically two or three months after fiscal year-end for most CCPCs. The T2 filing deadline and the payment due date are different. Interest compounds daily on any unpaid balance from the payment due date, regardless of whether the return has been filed.
Source: Canada Revenue Agency. T2 corporate return — when to file and pay. canada.ca
Key Takeaway: Every one of these mistakes is avoidable with good records, an understanding of CRA rules, and a CPA who reviews your situation before problems develop rather than after.
Nguyen Scott LLP works with businesses in Edmonton, St. Albert, Leduc, and Drayton Valley. Start with a free 30-minute consultation at nsllp.ca/contact-us/ or call 780-458-5479.