Ebitda Vs Net Income 2025 — How To Analyze Business Profitability Like A Cpa

EBITDA and net income are two of the most widely used metrics for evaluating business performance, yet many owners and investors misinterpret them. In 2025, understanding the difference is essential for valuation, loan applications, and CRA audit readiness. Mackisen CPA Auditors Montreal helps entrepreneurs interpret EBITDA and net income to measure true profitability and make informed financial decisions.

Legal and Regulatory Framework

Income Tax Act (Canada) Section 9(1): Defines business income as net profit, the foundation for taxable income.
CPA Canada Handbook Section 1510: Sets presentation standards for income statements under ASPE and IFRS.
Financial Reporting Standards for Small Enterprises (ASPE) Section 1520: Defines net income as the residual after all revenues, expenses, interest, taxes, and depreciation.
CRA Administrative Policy IT-479R: Recognizes EBITDA as a management metric but not a tax or GAAP-defined measure.

Key Court Decisions

Canada v. Spruce Mills Ltd. (1958): Established the tax definition of “profit” as net income after allowable deductions.
Global Communications v. The Queen (2019): Reaffirmed CRA’s right to adjust taxable income when accounting adjustments inflate EBITDA.
Tremblay Holdings v. Quebec (2020): Confirmed Revenu Québec’s power to reclassify interest and depreciation for tax reconciliation purposes.

Why CRA and Revenu Québec Audit EBITDA vs Net Income

CRA and Revenu Québec audit when financial statements show strong EBITDA but low taxable income, suggesting aggressive depreciation or non-deductible expense claims. Discrepancies between management EBITDA and tax filings often trigger reviews. Mackisen reconciles accounting and tax figures to ensure consistent reporting.

Mackisen’s Strategy

1. EBITDA Normalization — Adjust for non-recurring expenses and owner compensation.

2. Tax Reconciliation — Align financial EBITDA with taxable net income.

3. Financial Analysis — Evaluate performance ratios like EBITDA margin and ROI.

4. Valuation Support — Use normalized EBITDA for fair-market valuations.

5. Audit Preparation — Maintain clear working papers for depreciation, interest, and tax adjustments.

Real Client Experience

A Montreal distributor facing CRA scrutiny showed strong EBITDA but minimal taxable income. Mackisen reconciled depreciation schedules and justified all deductions, clearing the audit. A Quebec tech firm improved its EBITDA margin by 14% after Mackisen restructured expense allocations.

Common Questions

Which measure is better for valuation? EBITDA, as it excludes financing and non-cash expenses.
Which is used for taxes? Net income, adjusted under the Income Tax Act.
Why is EBITDA important? It reflects operational performance and cash generation.

Why Mackisen

Mackisen CPA Auditors Montreal combine accounting precision and tax expertise to interpret EBITDA and net income correctly. We ensure your reports satisfy lenders, investors, and CRA auditors. Call Mackisen CPA Auditors Montreal today for your 2025 Financial Analysis Consultation. The first meeting is free and focused on improving profitability transparency.