Do I need financial statements for my corporation in Canada?

The CRA requirement: GIFI

Every T2 corporate return includes the General Index of Financial Information, a standardised schedule that reports your balance sheet and income statement in a coded format the CRA can read. You cannot file a complete T2 without it, which means every corporation needs financial statements in some form, even a very small one with minimal activity.

For a simple owner-managed company with no external users, internally prepared statements feeding the GIFI may be all that is strictly required. The question is who else needs to trust the numbers.

The three levels of assurance

When someone outside the company relies on your statements, they usually want an accountant's involvement, at one of three levels:

• Compilation (Notice to Reader) — the accountant assembles statements from your information with no assurance. The cheapest and most common for small private companies.
• Review engagement — limited assurance through inquiry and analysis, giving moderate comfort. Often required by lenders above a certain loan size.
• Audit — the highest assurance, with detailed testing and verification. Required for many larger companies, non-profits above thresholds, and some regulated entities.

When a bank will ask for more than a compilation

Lenders set the bar based on the size and risk of the credit. A small operating line may accept internally prepared or compiled statements. A larger term loan, commercial mortgage, or a covenant-heavy facility often requires at least a review engagement, and sometimes a full audit.

It is worth asking your lender what level they need before you commission the work, because the cost difference between a compilation and an audit is substantial. Commissioning an audit when a compilation would satisfy the lender is money spent for no benefit.

When shareholders or partners need them

If you have shareholders who are not involved in day-to-day management, a shareholders' agreement may require statements at a defined assurance level so passive owners can trust the reported results. The same applies where a buy-sell arrangement, an earn-out, or a dividend policy depends on reported figures.

In these cases the assurance level is a governance question, not just a tax one, and it is usually set in the agreement rather than left to the year.

What good statements do beyond compliance

Even where only a GIFI is strictly required, proper statements are the foundation for every planning decision: the salary-dividend mix, whether to buy or lease, when to trigger capital cost allowance, and whether the small business deduction is at risk from passive income. Statements assembled to a real standard also make a CRA review far easier to answer, because the numbers reconcile and are supported.