Tax tips for owner/managers: Avoiding unwelcome tax surprises

This article was first published on January 15, 2007 and was revised on January 7, 2026. 

Owner/managers often face tax complications when mixing corporate and personal finances, which can lead to unexpected tax liabilities. Proper documentation and understanding of tax rules are essential to avoid these pitfalls 

Understanding what transactions can commonly cause year end issues for owner/managers and their tax advisors may help you better plan for the current tax year. Keep in mind that these are also the areas that pique the CRA's interest when performing a tax audit. 

When withdrawals become taxable loans  

While the funds may be considered an advance on account of salaries and dividends, sometimes they will be viewed as a loan. Unless the funds are borrowed for one of the purposes that are allowed under the Income Tax Act (“The Act”), the full amount of the loan is included in income and as such is taxable to the owner/manager. There is an exception to the income inclusion if the loan is repaid within one year from the end of the corporation's fiscal year. Note that the company must have adequate documentation to substantiate that the loan meets the allowed purpose under the Act. If the owner/manager receives a loan or advance from the company for some period in the year, interest has not been charged and the loan has not been included in income, the CRA will consider the interest to be a taxable benefit and calculate it at the CRA's prescribed interest rate. 

How business meals and entertainment get questioned  

For these expenses to be deductible, they must be supported with proper receipts. It is advisable to indicate each receipt, the names of the clients, and the business purpose of the expense. For items such as season tickets to sporting events, extra care should be exercised to ensure that the client's name and business purpose are documented. 

Why vehicle use requires careful record-keeping  

Whether the company owns or leases the vehicle, it is important to keep proper records so that your professional accountant can maximize the allowable deductions for the business use of the vehicle, including a mileage log. The personal use of the vehicle is a taxable benefit that must be reported. Where the automobile is leased, there are restrictions on the amount of lease payments that the company can deduct. There are also restrictions on what GST/HST amounts can be claimed on a mixed-use vehicle. Understanding and being prepared for these limitations is an important part of planning. 

Track personal use of company assets 

Where this has taken place, a taxable benefit must also be reported. An example would be the personal use of company-owned equipment. 

Document loans and investments from day one  

When your company makes loans to third parties or purchases investments, ensure you have appropriate documentation such as loan agreements, share certificates, and cancelled cheques. If these investments decline in value and weren't made for an income-producing purpose, the CRA will deny any loss claims.  

Structure family compensation properly 

When drawing money to pay a spouse or other related individual for services performed for the company, always pay salaries directly to that person. Any salary paid to a related person should be reasonable for the work performed for the company and the work done must be documented. If reasons for the salary or other payment cannot be supported, there may be significant tax implications. 

Maintain separate credit cards for business and personal use 

Sometimes credit cards are held in one of the owner/manager or company’s name but are used to pay for the expenses of the other. If you do not have the appropriate documentation to show which expenses are corporate and which are personal, this will not only create difficulties when your financial statements and tax returns are prepared but also cause additional problems if there is a tax audit.  

Separating credit charges and maintaining separate accounts helps prevent overlooked personal or business items. 

Time your bonus payments strategically  

In order for a bonus to be deductible to the company, it must be paid within 179 days after the company's year-end. If it is paid after that time, the company may not claim the deduction in the year the amounts were accrued, a situation that will result in a greater corporate income tax liability in that year. While the company can claim the deduction at the time the bonus is subsequently paid, this deduction is only allowed in the later year. 

Get professional advice 

Finding the appropriate tax planning strategies that will help minimize corporate and personal taxes can be challenging in today's complex taxation environment. Meet with your Baker Tilly advisor throughout the year to discuss your personal and company financial strategies to ensure that the personal and corporate transactions you carry out do not result in unanticipated tax consequences.   

Your accountant can help you review your financial structuring and advise on the timing and other requirements that can ensure a favourable tax treatment. 

Let's discuss your tax strategy. Connect with Baker Tilly to discuss your unique situation.