CRA Small Business Deduction Audit 2025 — Defend Your Corporate Tax Rate, Stop CRA Reassessments, and Eliminate Penalty

In 2025, CRA’s Small Business Deduction (SBD) Audit Division is aggressively reassessing Canadian-controlled private corporations (CCPCs) claiming the reduced small business tax rate. CRA’s audit software now cross-references corporate ownership, intercompany relationships, and passive income levels to detect potential ineligibility. Many legitimate businesses are being denied the SBD and reassessed at the higher general corporate tax rate because of innocent structuring or shared ownership. These audits often result in large retroactive tax bills, double taxation, and penalties. At Mackisen CPA Auditors Montreal, we protect small businesses from CRA’s misclassification. Our CPA auditors and tax lawyers prove CCPC eligibility, correct CRA assumptions, and secure full restoration of the small business rate. We don’t let CRA undermine entrepreneurship — we defend your right to grow fairly.

Legal and Regulatory Framework

Income Tax Act (Canada)

• Section 125(1): Grants the Small Business Deduction for active business income earned by CCPCs.

• Section 125(5): Reduces SBD for corporations with more than $50,000 in passive investment income.

• Section 18(1)(a): Ensures deductions are tied to income-earning activity.

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

• Section 220(3.1): Authorizes CRA to cancel or reduce penalties and interest under the Taxpayer Relief Program.
  Tax Administration Act (Quebec)
  Revenu Québec applies parallel SBD rules for provincial corporate tax filings. Mackisen coordinates both audits to ensure consistent eligibility across jurisdictions.

Key Court Decisions

Bédard v. The Queen (2022): CRA must prove association or ineligibility with factual ownership evidence.
Thibault v. The Queen (2022): Passive income within reasonable limits does not automatically revoke SBD eligibility.
Guindon v. Canada (2015): Honest corporate structuring or professional reliance negates gross negligence penalties.
Venne v. The Queen (1984): CRA must demonstrate deliberate non-compliance, not administrative oversight.
These rulings confirm that CRA must apply the SBD rules objectively, not presumptively.

Why CRA Targets the Small Business Deduction

CRA’s 2025 audit strategy focuses on corporations that:

• Have multiple related companies with shared ownership.

• Earn investment or rental income alongside business income.

• Claim SBD while paying management or service fees to connected entities.

• Exceed the passive income limit ($50,000 threshold).

• Display intercorporate transactions CRA suspects of income splitting.
  CRA assumes manipulation — Mackisen proves compliance and commercial reality.

Mackisen’s SBD Audit Defense Strategy

1. Eligibility Review: Evaluate corporate ownership, income sources, and prior SBD filings.

2. Documentation Reconstruction: Prepare corporate resolutions, agreements, and structure charts proving independence.

3. Intercompany Analysis: Demonstrate that each corporation earns genuine, active business income.

4. Formal Objection Filing: Submit a Notice of Objection to pause CRA collection and challenge ineligibility claims.

5. Penalty & Interest Relief: File under Section 220(3.1) to cancel penalties tied to CRA misinterpretation.
   Our approach ensures CRA recognizes your company’s structure, purpose, and rightful tax rate.

Real Client Experience

A Montreal family corporation was reassessed $486,000 for “shared ownership” disqualifying its SBD. Mackisen proved independent operations and CRA reversed the decision in full.
A Quebec manufacturer lost SBD due to passive income. Mackisen restructured filings and restored 100% eligibility.

Common Questions

Can CRA deny my small business tax rate? Only if your corporation isn’t a CCPC — Mackisen ensures proper classification and compliance.
Can I still qualify if I own multiple corporations? Yes, when properly structured — Mackisen prepares documentation to prove separation.
Can CRA apply the higher tax retroactively? Yes, but Mackisen can reverse it through objection and appeal.
Can CRA cancel penalties if I relied on my accountant? Yes — Mackisen files for relief under the Taxpayer Relief Program.

Why Mackisen

At Mackisen CPA Auditors Montreal, we are Canada’s trusted defenders of small business tax rights. Our expert team of CPAs and tax lawyers ensures your corporation retains its Small Business Deduction, protects your rate, and avoids future risk. We act fast, build airtight evidence, and win consistently — because small business deserves big protection. When CRA audits your SBD claim, Mackisen audits their understanding of your business.
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.