Mistakes, Penalties and Official Sources
Common corporate accounting mistakes that raise your accountant's bill (and your tax risk)
The bookkeeping, sales tax, shareholder and filing mistakes that most often turn a Canadian corporation's routine year end into an expensive clean-up, and how to avoid them.
The mistakes that cost small Canadian corporations the most are rarely exotic. They are mixing personal and business money, letting reconciliations slide, mis-coding sales tax, losing track of what the owner took out, missing filing or payment dates, and trusting automated entries nobody reviewed. Each one adds clean-up hours at year end, and several can also lead to CRA penalties, interest or reassessments. This guide lists the most common mistakes, what they cost, and the habit that prevents each one.
This is the overview guide for the Mistakes, Penalties and Official Sources section. Amounts are illustrative.
The mistakes at a glance
| Mistake | Typical consequence | Prevention |
|---|---|---|
| Personal spending through the corporation | Clean-up hours; taxable shareholder benefits; disallowed expenses | Separate accounts and cards; reimburse properly |
| No record of owner withdrawals | Shareholder loan problems; possible income inclusion | Track a shareholder loan account monthly |
| Unreconciled bank and card accounts | Missing or duplicated transactions; inaccurate statements | Reconcile monthly |
| Wrong sales tax codes | Under- or over-remitted GST/HST/QST; amended returns | Set up codes carefully; review exceptions |
| Input tax credits without proper invoices | Credits denied on review | Keep invoices with supplier registration numbers |
| Not registering for GST/HST when required | Tax owing on past sales, plus penalties and interest | Monitor the small supplier threshold |
| Paying tax at the T2 deadline instead of the balance-due day | Interest from the earlier date | Know your balance-due day |
| Late or missing returns and slips | Penalties based on tax owing; repeat penalties | Calendar every deadline |
| Unremitted payroll deductions | Penalties; directors' personal liability | Remit on schedule |
| Unreviewed automation | Year-end clean-up; filed returns based on wrong data | Monthly review |
1. Using the corporation as a personal wallet
A corporation is a separate legal person. When the owner pays personal bills from the corporate account, the accountant has to identify each item and decide whether it is a shareholder loan, salary, dividend or a taxable benefit. Personal expenses claimed as business deductions can be denied and treated as a benefit to the shareholder. The fix is simple: one business account and card for business only, and documented reimbursements when you pay a business expense personally. Details in shareholder loans and personal expenses.
2. Losing track of the shareholder loan
Money the owner takes out that is not salary or a declared dividend is generally recorded as a loan from the corporation. Under the Income Tax Act, a shareholder loan that is not repaid within one year after the end of the corporation's tax year in which it was made can be included in the shareholder's income, subject to exceptions. If no one tracks it, the accountant has to reconstruct it from bank statements, and the tax consequence may be discovered too late to avoid.
3. Reconciling once a year
Reconciliations catch missing deposits, duplicated feed transactions, bank errors and fraud. Doing them once a year means problems are found when they are hardest to fix. An illustrative firm that spends four extra hours at $130 reconciling twelve months of a credit card adds $520 to the bill, every year, for something that takes minutes a month.
4. Sales tax coding errors
Common errors include charging HST at the wrong provincial rate, treating zero-rated or exempt supplies as taxable or the reverse, claiming the full tax on meals and entertainment where only part is generally claimable, and claiming credits on personal purchases. Each error flows into every return filed with that code. See the GST/HST and QST workload guide and automation errors and ITCs.
5. Missing a registration
A business that should have registered for GST/HST but did not may still owe the tax it should have collected on past sales, from its own pocket if it cannot collect from customers. Monitor taxable sales against the small supplier threshold every quarter.
6. Misreading the calendar
The most frequent timing error is paying corporate tax when the T2 is filed (six months after year end) instead of on the balance-due day (two or three months after year end). Interest runs from the balance-due day. See the 2026 filing calendar and late-filing penalties.
7. Payroll remittance slips
Income tax, CPP or QPP and EI deducted from employees' pay belong to the government. Late remittances attract penalties, and directors can be held personally liable for unremitted source deductions and for unremitted net GST/HST, subject to a due diligence defence. Treat these as the first bills you pay.
8. Poor records
The CRA can deny expenses and credits that cannot be supported. Records must generally be kept for six years from the end of the last tax year they relate to. See CRA reviews and record retention.
9. Changing accountants without the file
Switching firms is your right, but leaving without the prior year's working papers, trial balance and filed returns makes the new firm rebuild the opening position. See switching accountants and fee disputes.
What these mistakes cost: an illustrative year
| Problem found at year end | Extra hours at $130 | Extra fee |
|---|---|---|
| Personal expenses mixed in | 3 | $390 |
| Shareholder loan rebuilt | 4 | $520 |
| Card reconciliation for 12 months | 4 | $520 |
| Sales tax amendments for two quarters | 3 | $390 |
| Total | 14 | $1,820 |
14 x $130 = $1,820, before any penalties or interest. Most of it disappears with monthly habits and the year-end checklist.
When to get professional help quickly
If you receive a CRA demand to file, a notice of assessment you do not understand, a letter about unremitted payroll deductions, or discover that you should have registered for GST/HST years ago, contact a CPA or tax lawyer promptly. Acting before the CRA does usually leaves more options. To check any rule yourself, start with the directory of official sources.
Frequently asked questions
Which mistake is the most expensive?
It depends on the corporation, but unremitted payroll deductions and sales tax can be among the most serious, because directors can be personally liable and the amounts were never the corporation's money.
Can I fix last year's mistakes myself?
You can correct bookkeeping, but amended returns and decisions about shareholder loans are worth reviewing with your accountant.
Will the CRA penalize honest errors?
Interest generally applies to late payments whatever the reason. Penalties vary; the taxpayer relief provisions may help in some circumstances.
Sources
- Canada Revenue Agency — corporate filing, payroll, GST/HST and record-keeping obligations
- Justice Laws Website — Income Tax Act sections 15 and 227.1, Excise Tax Act section 323
- Revenu Québec — Quebec obligations
