Intercompany transactions can become a tax position

If you run more than one company, intercompany transactions can become a tax position.

And the CRA reconciles it before you do.

This is what most multi-entity owners don't see coming, and why it matters before year-end, before a deal, and before an audit.

You have intercompany transactions whether or not anyone tracks it

The moment money moves between two companies you own, you've created an intercompany balance. A loan. A shared expense. A transfer to cover payroll. It exists whether you record it or not.

The $200K example: If Holdco moves $200K to Opco, that's a receivable on Holdco and a payable on Opco. Same number, opposite direction. When the two sides don't match, something is wrong now - not at year-end.

Across the group, it should always net to zero

Bank balances tell a story. Intercompany doesn't - it's a closed loop. Add up every intercompany balance across every entity you own. Holdco is owed $200K. Opco owes $200K. Group total: zero.

Every intercompany balance across all entities must sum to zero always.

That gap is the first thing a buyer, lender, or CRA auditor finds because it's the easiest thing to test.

Anything other than zero is phantom money on your books.

One $50,000 entry. Five different tax outcomes.

The same $50K moving from Holdco to Opco could be any one of these, and each carries a completely different tax consequence.

1. Shareholder Loan - Taxable under s.15(2) if not repaid
2. Management Fee - Deductible only with a written agreement
3. Expense Reimbursement - Requires proper documentation
4. Capital Contribution - Equity treatment, no deduction
5. Dividend in Substance - Taxable dividend to the shareholder

The amount is bookkeeping. The reason is the tax position. Controllers document the reason because that's the question the CRA, the auditor, and the buyer all ask first.

One catch-all account is a decision not to know

Intercompany isn't one thing. Inside any group it splits into multiple flows that behave differently and tax differently. Best practice is to give each its own account, so you can always see what's moving between entities, and why. Multiple clean accounts mean your books answer questions instead of raising them.

• Loans - Interest-bearing, with defined terms and repayment schedules.
• Management Fees - Require a written agreement and a clear commercial reason.
• Expense Allocations - One entity pays, the other owes - needs a documented basis.
• Capital Movements - Contributions, dividends, and returns of capital - each taxed differently.

These look like bookkeeping errors, but they're actually tax positions

The costly errors are tax positions that collapse because the records don't support them. Here are the four most common traps.

1. s.15(2) - Shareholder Loan: A shareholder loan not repaid within one year of the lender's year-end becomes taxable income to the shareholder.
2. s.67 - Management Fee Denied: A management fee with no written agreement, or one the CRA finds unreasonable, gets denied as a deduction.
3. s.15(1) - Shareholder Benefit: Personal or cross-entity expenses run through the wrong company, never recharged, get reassessed as a shareholder benefit.
4. s.156 Election - GST/HST: GST/HST applies to intercompany charges unless closely related entities file the s.156 election. Most owners have never heard of it.

Intercompany is invisible until it isn't

Three moments turn it from quiet to loud. By the time it surfaces, fixing it costs more than maintaining it ever would have.

A CRA Review: They reconcile your related-party balances. If you can't, expect reassessments on every position above.

A Financing Round or Sale: Buyers and lenders open the related-party balances first. Messy intercompany has killed more deals than weak EBITDA.

A Shareholder Dispute or Exit: Every dollar that moved between entities is suddenly contested, and undocumented flows become someone's argument.

A 15-minute fix in March is a 20-hour fix in December

Clean intercompany isn't complicated - it's just monthly. The discipline is in the cadence, not the complexity.

• Pull Balances: Extract monthly balances from both entities.
• Confirm Match: Verify amounts align exactly between entities.
• Investigate Variance: Resolve same-month differences immediately.
• Document: Record findings and adjustments for audit trail.

Skip it for a quarter and the cleanup costs more than a full year of doing it right. Skip it until year-end and you're paying someone to reverse-engineer decisions no one wrote down.

Here's what clean intercompany actually looks like

Run this against your own group. If you can't clear this bar today, you don't have a bookkeeping gap - you have an open tax position.

• Every entity produces its intercompany balances on demand.
• Every pair mirrors exactly - no variance, ever.
• Every entry has a documented reason, not just an amount.
• Loans have terms, management fees have agreements, allocations have a basis.
• The group reconciliation nets to zero every month.
• Year-end becomes a confirmation, not a discovery.

The decisions that decide what you owe

We breakdown the controllership and tax decisions that move the year-end for Canadian businesses past the DIY stage.

Intercompany. Shareholder loans. Reasonable management fees. The s.156 election. The things that decide what you owe.

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This is a brief introduction. Intercompany transactions and shareholder loans carry finer points and exceptions this format can't cover, and the right treatment depends on your specific structure. Talk to your accountant before acting on any position here.