$137,000. That’s the average small business audit reassessment from the CRA — before interest — based on the latest published data from 2019.
Since then, enforcement funding has more than doubled. Last year alone, the CRA conducted over 84,000 audits and enforcement actions, up 35% in two years. They now use data matching, industry benchmarking, and risk-scoring algorithms to flag returns before a human ever touches them.
We work with incorporated business owners every day at Blueprint Financial, and we’re seeing it firsthand. More clients are coming to us after getting an audit notice, wishing they’d acted sooner. Let me show you some of the red flags.
Your Corp Is Not a Piggy Bank
Let me tell you about Guy Laliberté. Founder of Cirque du Soleil. Controlling shareholder of the corporate group. In 2009, his corporation paid $41.8 million to send him to the International Space Station for twelve days.
His argument? Marketing initiative. A new frontier in entertainment promotion.
CRA’s response? That’s a personal trip.
The Tax Court agreed. Laliberté had committed to the trip before even seeking corporate approval. He structured it so external shareholders’ interests were unaffected. The court assessed a shareholder benefit of $37.6 million. Only $4 million was allocated to legitimate business activities.
Now, you’re probably thinking… okay, but I’m not flying to space. Fair. So let’s talk about Touchette.
In 2025, the Tax Court decided Touchette v The King. Quebec land developer. Sole shareholder of his corporation. CRA audited him and found two things: he bought land from his own corp below fair market value, and his corporation was paying for infrastructure that benefited him personally. The total? Over $230,000 in shareholder benefits assessed against him. The court upheld most of it.
And this is the trap. When your corp pays for something personal, the value of that benefit gets included in your income. Not as a dividend, where you’d at least get the dividend tax credit. As regular income. Taxed at your full marginal rate. And the corporation? No deduction. So you’re effectively double-taxed.
If you take money out for personal use, it either needs to be documented as salary, dividends, or a properly structured shareholder loan repaid within one year after the end of the corporation’s taxation year. Right now, the prescribed interest rate on shareholder loans is 3%. Miss that repayment window, and the full loan amount gets included in your income in the year it was made.
Every dollar that comes out of your corp for personal use needs a paper trail. CRA will decide for you if you don’t, and you won’t like how they do the math.
Your Accountant Said It Was Fine
So the Laliberté case, the Touchette case… those business owners probably knew they were pushing it. Maybe they didn’t think they’d get caught, but they knew. This one is different. This one might be you, and you don’t even know it.
Paying a spouse or family member through your corporation. Maybe as salary. Maybe as management fees. Maybe as consulting fees. And in a lot of cases, this was set up by a professional. It looked legitimate on the surface.
But CRA loves to challenge these arrangements, because they’re easy to pick apart. The test comes from a foundational case called Gabco Ltd. v MNR. It’s been the law for over fifty years. And it starts with a simple question: would you pay a stranger the same amount for the same job?
But it doesn’t stop there. What did this person actually do? How many hours? Can you prove it? Is there a written contract? A job description? Timesheets? And is the amount you’re paying them in line with what that work is worth on the open market?
A lot of business owners paying a family member can’t answer any of that. Maybe the arrangement was set up on their accountant’s advice years ago and nobody documented a thing. CRA knows this. That’s why they don’t challenge these at setup.
They wait years, then ask during an audit, when the trail is cold. And right now, CRA auditors are specifically asking for timesheets, contracts, and market salary benchmarks when they flag these arrangements. Can’t produce them? The deduction gets denied going back multiple years. Plus interest. Plus potential gross negligence penalties.
And since 2018, there’s another layer. The Tax on Split Income rules mean that payments to related adults aged 18 to 24 get taxed at the top marginal rate unless they’re actively engaged in the business at least 20 hours a week. Even for adults 25 and older, there are tests they need to meet.
So if you’re paying a family member through your corp and you couldn’t walk an auditor through exactly what they do and why that number is reasonable… you’ve got a problem.
“If you’re watching this and realizing your corporate setup might not hold up under audit, you’re not alone. At Blueprint Financial, we work with incorporated business owners every day to fix exactly these gaps, shareholder loans, family payments, vehicle claims, all of it. We’ll look at what you’ve got, tell you where you’re exposed, and help you fix it before CRA comes knocking. Book a free discovery call at blueprintfinancial.ca. Build the life you want, with the right Blueprint.”
The Deduction That Falls Apart in an Audit
This is the one everyone thinks they’ve got figured out. Your corp owns the vehicle, you drive it, you claim the expenses. Simple, right?
In 2019, CRA launched a targeted audit project specifically looking at corporate vehicle expenses. And what they found was… not great. Three issues kept coming up over and over.
First, businesses didn’t have proper logbooks. Not bad logbooks. No logbooks. Or a logbook that was clearly filled in the night before the audit.
Second, I still see business owners buying vehicles personally, then trying to run all the expenses through the corporation. That doesn’t work.
A recent Ontario Inc. v. The King decision makes this very clear. In that case, a real estate corporation tried to claim over $8,800 in input tax credits on two 2021 vehicles, a Ford Expedition and an F-150. The issue wasn’t business use. It was ownership.
Both vehicles were purchased in the shareholder’s personal name, registered personally, and insured personally. The corporation wasn’t listed anywhere on the legal documents.
Even though the company was making the payments, the court ruled it didn’t matter. Legally, the corporation didn’t acquire the vehicles, so it had no right to claim the tax credits.
The result? The full $8,800 was denied.
And third, when CRA asked for receipts, all people had were credit card statements. No invoices. No actual receipts for fuel, maintenance, insurance. Just a Visa bill.
And here’s what makes this worse when you’re incorporated. If your corporation owns the vehicle and you use it for anything personal… driving the kids to hockey, going to the grocery store, weekend trips… you owe a standby charge and operating cost benefit on that personal use. That’s taxable income to you, reported on your T4. And if you’re not an employee of the corp? It’s a shareholder benefit under subsection 15(1), which is taxed even more aggressively.
Here’s what CRA requires for a logbook, and I want you to really listen to this. For every single business trip: the date, the destination, the purpose, and the kilometres. Plus your odometer reading at the start and end of each fiscal year. And you need to keep these records for six years.
If you’re claiming your vehicle through your corp and you don’t have a logbook that would survive an audit, you are exposed right now. Not might be. You are.
“If you’re paying family members through your corp, I put together a free guide on seven income-splitting strategies that actually hold up. Grab it at blueprintfinancial.ca/income-splitting-strategies-download. Link’s in the description.”
Conclusion
Three cases. Three different deductions. One common thread: documentation.
Every one of these business owners lost because they couldn’t prove what they were claiming. And with CRA getting $500 million in new AI tools and proposed new powers that include questioning under oath and penalties up to 10% of your total tax payable for not cooperating with an audit… the days of flying under the radar are shrinking fast.
Before this tax season, go back to your accountant and ask them one question: if CRA audited me tomorrow, can we defend every deduction in this return? If they hesitate, you have work to do.
If you’re an incorporated business owner and want a second set of eyes on your corporate structure, that’s exactly what we do at Blueprint Financial.
Even small adjustments to how your business is set up can have a meaningful impact on taxes, cash flow, and long-term planning.
If you’d like a professional review of your setup, explore our financial planning services.
And if you want more practical insights on business deductions, tax strategy, and smarter financial decisions, join our free financial newsletter.
The right structure today can make a significant difference over time.
