For small and medium-sized businesses in Canada, proper bookkeeping is more than just keeping your records neat—it’s your first line of defense against a Canada Revenue Agency (CRA) audit. The CRA has the right to review your financial records going back six years, and poor bookkeeping practices can easily trigger penalties, interest, or full-scale audits.
At Track Accounting Inc., we help businesses avoid costly errors by setting up compliant, audit-ready systems. Below, we break down the most common bookkeeping mistakes that can trigger a CRA audit—and how you can avoid them.
One of the biggest red flags for the CRA is when businesses deduct expenses that clearly don’t relate to their line of work. Examples include:
The CRA carefully compares your expense claims against your industry norms. If something looks out of place, it can trigger a review.
How to avoid this: Only claim expenses that are directly related to earning business income. When in doubt, consult an accountant to confirm if an expense is eligible.
The CRA can request to review your financial records at any time, and by law, you must keep all records (invoices, receipts, bank statements) for at least six years. Many businesses get into trouble because they:
If you cannot provide adequate records during an audit, the CRA can deny deductions and issue additional tax assessments—plus interest and penalties.
How to avoid this: Use reliable accounting software like QuickBooks Online, which allows you to attach digital copies of receipts to transactions and automatically backs up your data.
Reconciling your bank accounts regularly is crucial for ensuring your books match your actual cash flow. Many businesses skip this step, which can lead to:
The CRA may flag discrepancies between your reported income and what your bank records show, leading to an audit.
How to avoid this: Perform bank and credit card reconciliations at least monthly. Accounting platforms like QuickBooks can automate much of this process by syncing with your bank feeds.
Improperly tracking GST/HST is another common audit trigger. Some businesses:
The CRA closely monitors GST/HST filings, and discrepancies often result in audits.
How to avoid this: Track GST/HST separately using accounting software. QuickBooks can help you record sales tax automatically, calculate ITCs, and generate returns on schedule.
Using the same bank account or credit card for personal and business transactions is a recipe for trouble. It makes it difficult to:
This is a common issue for sole proprietors and small corporations, but it can create serious compliance risks.
How to avoid this: Always maintain a dedicated business bank account and credit card. Keep personal and business spending completely separate.
While DIY bookkeeping can seem like a cost-saving measure, errors can cost far more in CRA penalties, lost deductions, and audit stress. Many small businesses run into problems because they:
These mistakes can lead to audits, reassessments, and unexpected tax bills.
How to avoid this: Hire a qualified bookkeeper or accounting firm like Track Accounting Inc. to ensure your books are accurate, compliant, and audit-ready year-round.
At Track Accounting Inc., we offer bookkeeping and accounting services designed to keep your business CRA-compliant and stress-free, including:
With us managing your books, you can focus on running and growing your business—without worrying about CRA penalties.
Contact Track Accounting today to keep your business compliant and audit-proof.
