Most of the tax trouble we see in owner-managed businesses is not aggressive planning gone wrong. It is ordinary bookkeeping and timing error — small things that compound quietly for two or three years until a CRA letter arrives. Below are the seven mistakes we correct most often for clients across Mississauga and the GTA.
1. Running the books on a cash basis
This is the single most common error, and it is not a matter of preference. The Canada Revenue Agency allows farmers, fishers and self-employed commission agents to choose between the cash and accrual methods. Everyone else must use the accrual method: revenue is recorded when it is earned, not when the money lands, and expenses are recorded when they are incurred.
A business keeping cash-basis books typically understates year-end receivables and overstates the prior year’s income, which distorts every ratio a lender looks at and usually means a reassessment when the difference is found.
2. Crossing the instalment threshold without noticing
A corporation does not have to pay instalments if its tax payable is $3,000 or less in either the current or the previous tax year, and a new corporation is exempt for the first tax year after incorporation. The problem is the year after a good year: once you cross that threshold, monthly or quarterly instalments become mandatory, and the CRA charges instalment interest on what you did not pay along the way.
For individuals, the trigger is net tax owing of more than $3,000 ($1,800 for Quebec residents) in the current year and in either of the two preceding years. Business owners who shift from salary to dividends often walk into this in their second year.
3. Leaving a shareholder loan outstanding too long
Drawing money out of your corporation and calling it a loan is fine — until it is not repaid. Under subsection 15(2) of the Income Tax Act, an amount owing by a shareholder is included in that shareholder’s income unless it is repaid within one year after the end of the corporation’s taxation year in which the loan was made, and the repayment is not part of a series of loans and repayments.
Repaying the balance on December 30 and drawing it again on January 2 does not solve the problem. It is exactly the pattern the series rule is written to catch.
4. Treating collected HST as working capital
The GST/HST you collect is not revenue. It is money held on the government’s behalf, and spending it is one of the fastest routes to an arrears balance that compounds daily.
The related error is registering late. You stop being a small supplier once your taxable supplies exceed $30,000 over four consecutive calendar quarters ($50,000 for charities and public service bodies). Miss that point and you still owe the tax you should have charged — usually out of your own margin, because the customer has long since paid.
5. Claiming vehicle expenses without a log
Vehicle costs are among the most frequently reviewed deductions, and the CRA’s position is straightforward: without a record distinguishing business kilometres from personal ones, the claim is not supportable. A logbook kept contemporaneously — date, destination, purpose, kilometres — takes a few seconds per trip and is the difference between a deduction that survives review and one that does not.
6. Filing information slips late
T4 and T5 slips are due by the last day of February. Because they sit outside the normal year-end cycle, they are easy to forget, and the penalty is assessed per slip — which means a business with a dozen employees can accumulate a meaningful amount for what felt like a minor delay.
7. Filing late because the numbers are not ready
Late filing and late payment are two separate penalties. If you cannot finalise the return, file on the best information available and amend later; if you cannot pay, file anyway and arrange the payment separately. The most expensive version of this mistake is doing nothing because the file feels overwhelming, which is also the version we see most often.
Where this usually starts
Every item on this list traces back to the same root cause: bookkeeping that was set up to satisfy the bank rather than to produce reliable numbers. Fixing the year-end is treating the symptom. Fixing the system it comes from is the work that actually stops these from recurring.
If any of the above sounds like your file, get in touch — or read more about our accounting, taxation and advisory services.
This article is general information, not advice for a specific situation. Rules and thresholds change. Please confirm how they apply to you before acting.
