Does a Corporation have to claim expenses?

New client hasn’t filed tax returns for three years. The business was new, tourism related, and only filed a return for the first year. There is minimal income to report in the second year and zero income to report in the past two years.
They had some expenses every month up until recently but client doesn’t want to spend any money on bookkeeping or “unnecessary work”.
In guide T4002 it says “you MUST start reporting your income and CAN start deducting your expenses when your business starts”. I know the guide is for sole-proprietors, but I didn’t find anything related to corporations.
Is there any obligation/requirement for a corporation to claim all expenses? Or can they just report the very little income and just ignore all their expenses.
Not sure what to do for balance sheet info in that case since bank balance won’t reconcile. Should I just withdraw from the engagement? Is there any liability to me to file it the way they want?

It seems to me the correct thing to do is report what happened. Those losses can be carried forward against years when they are taxable. If he does not want to start now, he can wait until they demand a return then file all unfiled years. I don’t understand why they would not want to file expenses.

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They want to dissolve the corporation. Just trying to bring the taxes up to date before proceeding with the dissolution. So, I’m just wondering if there is any obligation or requirement in the ITA to report expenses.

I am not a tax expert, but I would record enough expenses so there is no tax payable. Then I would bring the balance sheet to zero - that is if there are no assets to dispose of.

There is no requirement on the part of CRA to claim expenses or ITC’s, and in this case I expect it is all OK. There are some circumstances under which it is not OK. For example if you provide financial statements to support an application for a loan and make results look better by excluding expenses, pretty sure that would be fraudulent.


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If you are a CPA, and your client is refusing to report those and insist on filing a nil return, you should resign


Why? What difference does it make? It won’t change the corporation tax; the corp is being shut down; it won’t change any personal tax.

working with false information if knowingly, willingly, against the code of conduct. Too many code of conducts that we have to adhere to as CPA

This one is tough. In theory, it seems wrong to not include the expenses. The standard should always be to do things the right way which is to include all income and expenses.

However, from an application standpoint, I understand how the cost to benefit ratio is not there to do the bookkeeping to total the expenses. I always try to put myself in a CRA auditor’s shoes. Would an auditor care about a taxpayer not claiming expenses? Probably not.

I typically stay away from these types of engagements. For example, need a few returns filed and don’t want to do things the correct way.

You may want the recurring business so you can sell your practice one day. These one-time engagements are usually not worth the time/effort. But that’s my opinion and may differ greatly from others.


Depends how your engagement letter is worded, and whether the client may blame you (in the future) for something CRA decides is incomplete/incorrect/misleading/etc. You have to assess the risks and decide accordingly.