What compensation practices from my Ontario corporation are most likely to attract a CRA audit?

The CRA focuses audit resources on areas of highest revenue risk. For owner-managed corporations, common audit triggers include shareholder loans that have been outstanding for more than one year without proper inclusion in income, large bonuses paid to related parties without matching T4 filings, dividends paid without board resolutions or without matching T5 slips, and automobile benefits that were not reported.

Salary amounts that appear inconsistent with the owner-manager's role can draw scrutiny, especially if the corporation is paying a very high salary to a spouse or family member for limited documented work. Dividend payments to family members through trusts or directly are reviewed for TOSI compliance. Losses carried forward repeatedly over many years with no business income can signal a hobby or inactive business.

Mismatch between corporate revenue and personal income reported by the shareholder is a classic audit flag — if the corporation reports $400,000 in revenue but the shareholder reports minimal personal income, the CRA may ask where the money went. Documentation is your best defence: T4s, T5s, board resolutions, shareholder loan schedules, mileage logs, and reasonableness evidence for all related-party payments. An annual bookkeeping review with your accountant reduces both audit risk and the cost of responding if selected.