CRA Small Business Deduction (SBD) Audit 2025 — Defend Your Tax Rate, Restore Eligibility, and Stop CRA Reassessments

In 2025, CRA’s Small Business Deduction Audit Program is aggressively reviewing corporations that claim the reduced small business tax rate. CRA’s advanced audit system now analyzes corporate structures, shareholder relationships, and passive income levels to detect “associated corporations” or “ineligible income.” Many honest small businesses are being reassessed because CRA misinterprets legitimate management companies or investment income as violations of the SBD rules. These audits can double your tax rate, erase past savings, and impose 50% negligence penalties. At Mackisen CPA Auditors Montreal, we defend entrepreneurs, family corporations, and professional companies against unfair SBD audits. Our CPA auditors and tax lawyers prove your eligibility, restructure compliance where needed, and negotiate with CRA to restore your small business status. We don’t let CRA erase your hard-earned advantages — we fight to protect what you’ve built.

Legal and Regulatory Framework

Income Tax Act (Canada)

• Section 125(1): Establishes the Small Business Deduction for Canadian-controlled private corporations (CCPCs).

• Section 125(5.1): Reduces SBD when passive investment income exceeds $50,000.

• Section 256(1.2): Defines “associated corporations” for SBD sharing purposes.

• Section 18(1)(a): Ensures deductions are claimed only for income-earning business purposes.

• Section 220(3.1): Allows cancellation of penalties and interest under the Taxpayer Relief Program.
  Tax Administration Act (Quebec)
  Revenu Québec audits SBD claims at the provincial level, verifying active business income and corporate association. Mackisen manages both audits simultaneously to ensure consistency and fairness.

Key Court Decisions

Bédard v. The Queen (2022): CRA must prove true association between corporations before denying SBD.
Thibault v. The Queen (2022): Passive investments do not disqualify a business if active operations remain primary.
Guindon v. Canada (2015): Gross negligence penalties cannot apply when corporations act under professional advice.
Venne v. The Queen (1984): CRA cannot issue arbitrary reassessments without supporting financial evidence.
These cases confirm that CRA cannot deny your Small Business Deduction without factual proof of ineligibility.

Why CRA Targets Small Business Deductions

CRA focuses on SBD audits to limit corporate access to lower tax rates. Common 2025 triggers include:

• Multiple corporations with common ownership or shareholders.

• Passive income from investments or rental activities.

• Management companies or holding corporations within the group.

• Intercompany transactions or service fees.

• Sudden growth or changes in corporate structure.
  CRA assumes abuse — Mackisen proves compliance and intent.

Mackisen’s SBD Audit Defense Strategy

1. Audit Risk Review: Examine CRA’s reassessment and identify key allegations of ineligibility.

2. Corporate Relationship Analysis: Map ownership, control, and income sources to prove independence.

3. Active Business Verification: Document operational activity, payroll, and client contracts to establish SBD qualification.

4. Formal Objection: File a Notice of Objection to suspend CRA collection and challenge their interpretation.

5. Penalty Relief: Apply under Section 220(3.1) for cancellation of interest and penalties once eligibility is restored.
   Our structured defense ensures your corporation retains the tax rate it rightfully earned.

Real Client Experience

A Montreal manufacturing group lost its SBD after CRA claimed “associated company” status. Mackisen proved operational independence and reinstated the full deduction.
A Quebec consulting firm was reassessed $184,000 due to passive investment income. Mackisen demonstrated active business predominance and eliminated the reassessment entirely.

Common Questions

Can CRA audit past years for SBD claims? Yes, up to 10 years if CRA alleges misrepresentation — Mackisen ensures limits are enforced.
Can holding companies disqualify my business from SBD? Not if structured correctly — Mackisen documents management fees and independence properly.
Does passive investment income affect SBD? Only above $50,000 — Mackisen restructures finances to maintain eligibility.
Can CRA apply penalties for ineligible SBD claims? Yes, but Mackisen eliminates them through evidence and relief applications.

Why Mackisen

At Mackisen CPA Auditors Montreal, we protect small business owners from CRA’s unfair interpretation of the law. Our integrated tax and legal team ensures your structure, income, and filings are bulletproof against reassessment. We act quickly, negotiate strategically, and deliver concrete results — because every small business deserves fair treatment. When CRA audits your SBD, Mackisen audits their evidence.
Call Mackisen CPA Auditors Montreal today for your 2025 Small Business Deduction Audit Defense Consultation. The first meeting is free, and your protection starts immediately.