Who this is for
- Canadian corporations setting up or checking their accounts before a T2
- Sole proprietors asking whether their accounts must follow the T2125 lines
Not covered here
- Which year-end statements the T2 needs and any accountant's report
- T2 due dates, filing, and the Quebec and Alberta returns
- Partnership returns, insurance corporations, and farming or resource-industry codes
- Industry-specific accounts and taxes
Do I need a special chart of accounts for GIFI codes?
No particular chart of accounts is required. The Income Tax Act asks that books of account be kept in a form that lets the tax be determined. GIFI, the General Index of Financial Information, is the CRA's list of numbered financial statement items. The CRA says all corporations except insurance corporations should file their financial statement information in GIFI codes with the T2 return, and its GIFI guide applies those codes to the corporation's own statements: Schedule 100 for the balance sheet and Schedule 125 for the income statement. A chart already grouped the way GIFI groups items (assets, liabilities, equity, revenue, cost of sales, expenses) maps with the least rework. A sole proprietor has no GIFI step: the T2125, the business statement in the personal return, is filed by CRA line.
A case is not simple when:
- one large "miscellaneous" account holds several kinds of cost;
- an owner's withdrawals are booked as expenses;
- GST/HST is mixed into sales; or
- the first T2 has no clean trial balance, meaning a list of every account and its closing balance.
Each of these changes what the T2 reports or hides detail the CRA expects, so the trial balance needs review before the T2 is prepared. Gather the chart of accounts, the latest trial balance, and the prior T2's GIFI schedules (100, 125 and 141), if there is one.
What accounts does a small Canadian corporation need, grouped the way GIFI groups them?
A small corporation needs accounts in six groups: assets, liabilities, equity, revenue, cost of sales and expenses, plus income tax below profit. The table shows a common set and the GIFI item each usually maps to. Use your own account names, add only the accounts the business has, and check each code against the current list before filing: the full list is much longer.
| Group | Account | GIFI item |
|---|---|---|
| Assets | Cash on hand | 1001 Cash |
| Assets | Bank account in Canadian dollars | 1002 Deposits in Canadian banks and institutions – Canadian currency (1004 Deposits in foreign banks – Canadian currency, at a foreign bank) |
| Assets | US-dollar or other foreign-currency bank account | 1003 Deposits in Canadian banks and institutions – Foreign currency; 1005 Deposits in foreign banks – Foreign currency |
| Assets | Customer invoices owed to you | 1062 Trade accounts receivable |
| Assets | GST/HST refund due | 1066 Taxes receivable |
| Assets | Inventory | 1120 Inventories |
| Assets | Prepaid expenses | 1484 Prepaid expenses |
| Assets | Amounts the shareholder owes the corporation | 1300 Due from shareholder(s)/director(s) (2180 if long-term) |
| Assets | Equipment and furniture | 1740 Machinery, equipment, furniture, and fixtures; 1741 its accumulated amortization |
| Assets | Computer equipment and software | 1774 Computer equipment/software; 1775 its accumulated amortization |
| Assets | Vehicles | 1742 Motor vehicles; 1743 its accumulated amortization |
| Liabilities | Supplier bills and accrued costs | 2620 Amounts payable and accrued liabilities |
| Liabilities | Payroll deductions owed | 2627 Employee deductions payable; compare 2628 Withholding taxes payable |
| Liabilities | GST/HST owing; income tax owing | 2680 Taxes payable |
| Liabilities | Dividends declared but unpaid | 2962 Dividends payable |
| Liabilities | Amounts the corporation owes a shareholder | 2780 Due to shareholder(s)/director(s) (3260 if long-term) |
| Liabilities | Bank loans and mortgages | 3140 Long-term debt (3141 for a mortgage); 2920 Current portion of long-term liability for the part classified as current |
| Equity | Share capital | 3500 Common shares (3520 for preferred) |
| Equity | Retained earnings | 3600 Retained earnings/deficit; 3660 start, 3680 net income, 3700 dividends declared, 3849 end |
| Revenue | Sales of goods or services | 8000 Trade sales of goods and services |
| Revenue | Rent received on real estate | 8141 Real estate rental revenue |
| Revenue | Interest and investment income | 8090 Investment revenue |
| Revenue | Anything else | 8230 Other revenue |
| Cost of sales | Opening inventory, purchases, closing inventory | 8300, 8320, 8500, all feeding 8518 Cost of sales |
| Expenses | Advertising | 8521 Advertising |
| Expenses | Meals and entertainment | 8523 Meals and entertainment |
| Expenses | Amortization of equipment | 8670 Amortization of tangible assets |
| Expenses | Insurance | 8690 Insurance |
| Expenses | Interest and bank charges | 8710 Interest and bank charges |
| Expenses | Licences, dues and business taxes | 8760 Business taxes, licences, and memberships |
| Expenses | Office costs and supplies | 8810 Office expenses; 8811 Office stationery and supplies |
| Expenses | Accounting and legal fees | 8860 Professional fees (8862 for accounting fees) |
| Expenses | Rent | 8910 Rental (8911 for real estate) |
| Expenses | Repairs | 8960 Repairs and maintenance |
| Expenses | Salaries and wages | 9060 Salaries and wages |
| Expenses | Travel | 9200 Travel expenses |
| Expenses | Utilities | 9220 Utilities |
| Expenses | Telephone | 9225 Telephone and telecommunications |
| Expenses | Delivery and freight | 9275 Delivery, freight and express |
| Expenses | Vehicle running costs | 9281 Vehicle expenses |
| Expenses | Anything that fits no closer expense item | 9270 Other expenses (check 9284 General and administrative expenses first) |
| Income tax | Corporate income tax | 9990 Current income taxes |
Classify each loan and shareholder balance as current or long-term the way the statements do. Statements are reported in Canadian funds, unless an eligible corporation has elected a functional currency (Form T1296, due 60 days after the first day of the tax year), so a US-dollar balance is converted; see foreign exchange gain or loss on a USD account. A corporation that only holds rental property can see books for a rental holding corporation. On the CRA's GIFI-Short list, which eligible corporations filing paper returns may use (Form T1178), 9270 stands for all of items 9200 to 9285, so an amount is never reported in both.
How do I match each account to a GIFI code, and what if no code fits?
Prepare the statements from the accounts, then give each statement item one code in the CRA's order: an exact match, then the most appropriate item, then the generic item.
- Exact match. An account called "Advertising" is item 8521.
- Most appropriate. The CRA's own example is a "business charges" account, reported under 8760, the business taxes, licences and memberships item.
- Generic item. Each block of codes starts with a generic item, which does not stand for the total of the block. Use it only when nothing closer fits.
When one account combines two items, the CRA's rule is to report it under the item for the largest part. Its example is a combined rent, taxes and insurance amount, which goes to 8911, 8762 or 8690 depending on which is largest. A combined account therefore loses detail. Write the code beside each account in the chart; an account with no code is unfinished.
How detailed should my accounts be: one account per code, or several?
Either works, provided the statements keep the detail a traditional statement would show. The CRA asks for the same level of detail with GIFI as with traditional statements, with as many codes as it takes to represent the balance sheet and income statement in full, never only subtotals and totals. The CRA also says to keep the working papers that show the accounts behind each statement item, and not submit them with the return. Generally, keep the records behind them for six years from the end of the last tax year they relate to, or from the filing date if the return was filed late (Income Tax Act, section 230). An objection, an appeal or a CRA notice can extend that. The general ledger and the contracts behind it have their own period (regulations, section 5800): two years after a corporation is dissolved, or six years after the tax year a sole proprietor's business ceased.
| Setup | What happens at the T2 |
|---|---|
| Several accounts feed one statement item (separate accounts for each kind of advertising) | Fine. They add up to one code, and the books keep more detail than the T2 needs. |
| One account mixes two kinds of cost | The whole amount takes the code of the larger part. Splitting the account keeps the detail. |
| A large "miscellaneous" account | It sits in a catch-all item such as 9270 and hides what the money was for. Look inside it before filing. |
| One revenue and one purchases account for each sales stream, such as fuel and store sales at a gas station or convenience store | Fine. Revenue accounts add up to 8000 and purchases to cost of sales. |
Which accounts should stay separate so they land in the right place?
Keep an account separate when its balance is not ordinary revenue or expense, or when the T2 treats it differently.
| Keep separate | Why | GIFI item |
|---|---|---|
| GST/HST collected, and GST/HST paid that you can claim back | Tax collected is held in trust for the Crown, so it is not sales. Tax you can recover as an input tax credit is not a cost either; tax you cannot recover stays in the expense or asset cost. A registrant on the Quick Method cannot claim credits on most purchases. See recording GST/HST and the Quick Method in the books. | 2680 Taxes payable; 1066 Taxes receivable |
| Payroll deductions withheld | They are owed to the government, while wages are an expense. The CRA describes 2627 as deductions such as employment insurance, Canada Pension Plan, Quebec Parental Insurance Plan, group insurance and pension plans; nearby items include wages payable 2624 and withholding taxes payable 2628, so read their descriptions. See the payroll entry. | 2627 Employee deductions payable |
| Corporate income tax | It comes after profit before tax, not among operating expenses. See tax instalments. | 9990 Current income taxes |
| Dividends | A dividend reduces retained earnings. It is not an expense. See recording dividends. | 3700 Dividends declared; 2962 Dividends payable |
| Amounts due to or from a shareholder | They are balance sheet items, one account for each shareholder. | 2780 Due to shareholder(s)/director(s); 1300 Due from shareholder(s)/director(s); 3260 and 2180 if long-term |
| Meals and entertainment | Only 50% is generally deductible (T2 guide), so the rest is adjusted when income for tax is worked out. See meals in the books. | 8523 |
| Amortization | Book amortization differs from the capital cost allowance (CCA) claimed on Schedule 8. See amortization and CCA. | 8670 |
| Equipment purchases | A capital purchase is an asset, not an expense. | 1740 and similar |
Directors can be personally liable, together with the corporation, for payroll deductions and GST/HST it fails to remit (Income Tax Act, section 227.1; Excise Tax Act, section 323). Conditions and a due diligence defence apply, and a claim cannot start more than two years after a person last ceased to be a director; see catching up on unfiled corporate returns.
Where does money I put into or take out of my corporation go?
Unless it is salary, on the balance sheet, not in revenue or expenses. Money you put in is usually either share capital (3500) or an amount the corporation owes you (2780). Money you take out may reduce what the corporation owes you, become an amount you owe it (1300), be paid as a dividend (3700), or be run through payroll as salary, which is an expense (9060). What each payment is depends on what was decided and documented, not on the account the software offers.
A balance you owe the corporation can have tax consequences if it stays outstanding. The shareholder loan account guide covers the entries and the tax consequences.
Do a sole proprietor's accounts have to match the T2125 lines?
No. The books can use any names; what matters is that each amount ends up on the correct T2125 line. Line 9270, Other expenses, is for costs not already included on a previous line, and they must be listed on the form. The lines are on the CRA's T2125 expenses page; for them one by one, see self-employed expense lines.
Are T2125 line numbers the same as GIFI codes?
No, not reliably. Many numbers match, but each list has its own items, so look each one up and never carry a number from one return into the other. The CRA says corporations (except insurance corporations) and partnerships can file using GIFI; a sole proprietor reports on the T2125.
| Item | T2125 line | GIFI item |
|---|---|---|
| Vehicle costs | 9281 Motor vehicle expenses (not including CCA) | 9281 Vehicle expenses |
| Professional fees | 8860 Professional fees (includes legal and accounting fees) | 8860 Professional fees, with 8862 for accounting fees |
| Salaries | 9060 Salaries, wages, and benefits (including employer's contributions) | 9060 Salaries and wages |
| Rent | 8910 Rent | 8910 Rental, with 8911 for real estate |
| Telephone | No separate line; 9220 Utilities covers telephone | 9225 Telephone and telecommunications, separate from 9220 Utilities |
| Writing off equipment | 9936 Capital cost allowance (CCA) | 8670 Amortization of tangible assets; CCA is a separate tax claim |
| Anything else | 9270 Other expenses | 9270 Other expenses |
If you are incorporating a sole proprietorship, the corporation's accounts and GIFI mapping are a separate job; see books after incorporating.
Can I change categories from year to year?
Account names and categories can change from year to year: the CRA pages cited here set no rule that locks them. Renaming an account changes nothing on the return; moving an amount to a different line or code does, and that is right only if the cost belongs there. What must stay consistent is what the accounts measure:
- Inventory valuation. The method used at the end of one year must be used at the end of the next year unless the Minister concurs in a change, and the opening inventory is the prior year's closing value. See cost of goods sold for a sole proprietor.
- Cash or accrual reporting. For a sole proprietor, the CRA says only farmers, fishers and self-employed commission agents can use either method, and all other self-employment income must be reported on the accrual method; no CRA page gives a corporation a cash option. A sole proprietor moving from cash to accrual needs the CRA's permission, asked for in writing before the return's due date. See cash or accrual accounting.
- How the statements are prepared. The T2 starts from the net income on the financial statements, so a change in how they are prepared changes the starting point. The CRA pages cited here give no corporate rule for changing it; see year-end financial statements.
- Opening balances. Each year starts from the prior year's closing balances. If last year's accounts were mapped wrongly, do not quietly fix this year's; see correcting last year's statements.
Keep a dated note of any change and the mapping list, so a reviewer can see why a line moved.
How do I check that my mapped accounts add up to the statements?
The CRA says the GIFI has to balance and checks it with fixed rules. Amounts are reported in actual dollars without cents, and a required item with no amount is entered as 0.
| Check | Items |
|---|---|
| The balance sheet balances | 2599 Total assets = 3499 Total liabilities + 3620 Total shareholder equity |
| The income statement ties | 8299 Total revenue − 9368 Total expenses = 9369 Net non-farming income |
| Expenses add up | 9368 Total expenses = 8518 Cost of sales + 9367 Total operating expenses |
| Retained earnings are closed out | 3849 Retained earnings/deficit – End is reported whenever retained earnings are reported, and should equal 3600 Retained earnings/deficit |
| Net income is reported and carried into equity | 9999 Net income/loss after taxes and extraordinary items is reported, and 3680 Net income/loss should equal it, plus or minus 9998 when an amount is reported there |
These checks catch mapping errors, not bookkeeping ones: a withdrawal booked as an expense still balances. Also compare each mapped total with the adjusted trial balance. For the step from this net income to taxable income, see book profit versus T2 income.
My first T2, or someone else set up the accounts: what gets checked first?
What changes the numbers is checked before the codes.
- Print the trial balance at the year-end date and compare each balance with the bank, loan and tax statements.
- Check whether any of these sit in expenses: owner withdrawals, personal costs (see personal expenses paid by the corporation), loan principal, equipment purchases and recoverable GST/HST. Each normally belongs elsewhere.
- Split any large miscellaneous account and any account that mixes two kinds of cost.
- Give every account a GIFI item, then run the checks above.
- For a later year, compare the opening balances with last year's filed Schedule 100. A new corporation's first return also needs Schedule 101, the opening balance sheet.
If the trial balance will not reconcile, the books are months behind, or earlier returns are missing, the clean-up comes before the mapping: see catching up on overdue books.
Example
These examples use illustrative Canadian dollars.
Several advertising accounts
A corporation with C$300,000 of revenue keeps three accounts: "Social media ads" at C$5,000, "Search ads" at C$6,000 and "Flyers" at C$1,000. Together they are C$12,000. All three map to Advertising, item 8521. The corporation does not need to merge them in its books; the T2 needs the total.
Owner withdrawals in an expense account
A corporation books C$20,000 of an owner's withdrawals to an expense account called "Owner pay". If the amount is not salary run through payroll, profit is understated by C$20,000, yet the trial balance still balances. The amount would then sit in a shareholder account on the balance sheet until it is treated as salary, a dividend or a repayment, and the account is reclassified before the T2 is prepared. Which one it is depends on what was decided and documented.
A sole proprietor renames a category
In year one a sole proprietor's "Car" account holds C$4,000 of business-use costs, reported on T2125 line 9281. In year two the software category is renamed "Vehicle" and holds C$4,500. The T2125 is filed by line, so the rename changes nothing. Moving C$2,000 of office supplies into "Other expenses" is wrong when the cost fits a named line, as office supplies do on line 8811; line 9270 is only for costs not already on a previous line.
Different for you?
- Your accounts will not map cleanly (a large miscellaneous account, withdrawals booked as expenses, GST/HST mixed into sales, or a first T2 with no clean trial balance): which accounts to split or merge, what the year-end information must show, and whether clean-up has to come first are the questions to settle before the T2 is prepared. See bookkeeping help for the clean-up and corporate tax help for the return built on it.
- Your books are months behind, or T2s were never filed: start with catching up on overdue books and catching up on unfiled corporate returns.
- You are a sole proprietor and your expenses do not sit on the right T2125 lines: see self-employed expense lines and bookkeeping help.
- You want to know which statements the T2 needs, or whether a report is required: see year-end financial statements.
- You are filing the T2 yourself, or you are in Quebec or Alberta: see filing your corporate return, which covers due dates and the provincial returns.
- You just incorporated or are starting a new business: see books for a newly incorporated company and setting up books for a new business.
- You are choosing accounting software: see choosing accounting software.
Figures on this page
| Figure | Value | Source |
|---|---|---|
| Functional currency election filing deadline Form T1296; available only to corporations that meet Income Tax Act subsection 261(3) | 60 days after the first day of the tax year | Income Tax Act, paragraph 261(3)(b) Checked |
| General business-record retention period From the end of the last tax year to which the records and supporting documents relate; longer retention can apply | Six years | CRA: Where to keep your records, for how long and how to request permission to destroy them early Checked |
| CRA retention after corporate dissolution After the date of dissolution for records supporting the corporation's tax obligations and entitlements; other laws may require longer retention | Two years | CRA: Where to keep your records, for how long and how to request permission to destroy them early Checked |
| Usual income-tax deduction share for meals and entertainment Applies to the lesser of the actual amount paid or payable and a reasonable amount; statutory exceptions apply | 50% | Justice Laws: Income Tax Act, section 67.1 Checked |
| Federal director liability limit after leaving office Income Tax Act subsection 227.1(4) limits when recovery proceedings may begin; Excise Tax Act subsection 323(5) limits when a GST/HST director assessment may be made. Both run from when the person last ceased to be a director. | Two years | Income Tax Act, subsection 227.1(4) Checked |
Primary sources
- CRA: RC4088, General Index of Financial Information (GIFI)
- CRA: General Index of Financial Information (GIFI), corporations
- CRA: Preparing your financial statements using GIFI
- CRA: What is Schedule 141
- CRA: Expenses section of Form T2125
- CRA: Line 9220, Utilities (T2125)
- CRA: Other business expenses (T2125 line 9270)
- CRA: T4002, Chapter 1, General information
- CRA: T2 Corporation Income Tax Guide, Chapter 3, Page 3 of the T2 return
- Income Tax Act, section 10 (valuation of inventory)
- Income Tax Act, section 230 (records and books)
- Excise Tax Act, section 222 (GST/HST held in trust)
- Excise Tax Act, section 323 (liability of directors)
- Income Tax Act, section 227.1 (liability of directors)
- Income Tax Regulations, section 5800 (retention periods)
- CRA: RC4058, Quick Method of Accounting for GST/HST
About this guide
Published by Cloud Accounting under standing professional approval. This version has no separately recorded personal review. It explains general rules for the tax year shown. It is not advice for your situation.
Changes
- : First published.