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A small business in Canada needs three sets of financial statements in practice: a balance sheet, an income statement, and a statement of retained earnings if it’s a corporation. The CRA asks corporations for the first two every year through the T2 return, and sole proprietors report income and expenses on form T2125 with their personal return.
Which financial statements does the CRA look for?
The CRA’s system for this is the General Index of Financial Information, or GIFI. It sorts the numbers from your statements into set codes.
The General Index of Financial Information (GIFI) codes identify items that are usually found on a corporation’s financial statement (balance sheets, income statements, and statements of retained earnings).
Preparing your financial statements using GIFI, canada.ca
Corporations and partnerships must send that financial information in with the T2 or T5013 return. Here’s the part many owners miss. When you use GIFI, the CRA says not to send your own statements along. It’ll ask for them if it needs them, so keep the full versions ready.
What each statement shows
| Statement | What it tells you | Where the CRA sees it |
|---|---|---|
| Balance sheet | Assets, liabilities and equity on the year-end date | Schedule 100 (T2) |
| Income statement | Revenue and expenses over the year | Schedule 125 (T2), or T2125 for a sole proprietor |
| Retained earnings | Opening balance, net income, dividends, closing balance | Part of GIFI, corporations only |
Think of the balance sheet as a photo and the income statement as a video. One shows where you stand on a single day, usually December 31 or whenever your year ends. The other shows how you got there over the twelve months before it. You need both to know whether you’re doing well.
Do you need a cash flow statement too?
Probably not for tax, and here’s why: the GIFI material lists the three items above and no cash flow statement. A lender, an investor or your corporate law may still want one. No general legal rule says every small business must produce it, so ask whoever is asking for the statements.
Still, build one each year, because it shows why a profitable business can run short of cash when the bank balance keeps dropping and the income statement says everything is fine.
Small corporation or sole proprietor, what changes?
If a corporation has gross revenue and assets both under $1 million, and doesn’t use return preparation software, it can fill in the short GIFI form (T1178). Otherwise the corporation completes the schedules for the balance sheet and income statement.
A sole proprietor’s setup is lighter. Form T2125 is where you report business income and expenses, and you file it with your personal income tax return. It gives gross and net income. There’s no separate balance sheet to send in, though a lender may still want one.
Partnerships follow the corporate pattern when they have to file a T5013, and the business tax hub links to tools for that side.
A worked example with real numbers
Take an Ontario corporation with $300,000 of active business income for 2026. The corporate tax calculator shows $35,088 of tax, an average rate of 11.7%, and $264,912 left in the company. That last figure is what flows to retained earnings, before any dividends.
Now compare a sole proprietor with $80,000 of net business income in Ontario. The self-employed tax calculator gives $22,126.47 of income tax and CPP together, and $57,873.53 left. It doesn’t include GST/HST, EI or business expenses, so treat it as a ballpark check on your income statement, not a final figure.
When do you need statements outside tax time?
More often than you’d think. A bank asking about a loan wants the last two or three years. A landlord, a buyer, or a partner thinking of joining you will ask too. If your books are in order, handing them over takes minutes. If they aren’t, the delay can cost you the deal. Ask your accountant for a copy of the finished statements every year, not just the tax return, and keep them with your other records for six years.
Mistakes that make statements useless
- Mixing personal and business spending, so the income statement overstates costs.
- Leaving out the year-end bank balance, so the balance sheet won’t reconcile.
- Booking a sale when the cash arrives, in one year, and expenses when the bill is dated, in another.
- Forgetting sales tax. If you register for GST/HST, the amount you collect belongs to the CRA, not to revenue. The GST/HST calculator splits a total into price and tax.
If you’re a corporation, your incorporating jurisdiction may set extra rules for the statements shareholders receive. Look at the rules for your own province or the federal act.
The sources behind this page
The statement types and the GIFI filing rules come from the CRA‘s GIFI publication RC4088 and its T2 guidance, read in autumn 2026. The T2125 description is from the CRA’s page for sole proprietors. Tax figures in the examples come from this site’s calculators, which use 2026 rates. We’re an independent site, and no government body is behind it.
Frequently asked questions
Which financial statements does a small corporation file with the CRA?
The balance sheet and income statement information goes in with the T2 return, coded with GIFI. Retained earnings are included for corporations.
Do I send my full statements to the CRA?
Not when you use GIFI. The CRA says to keep them and it will ask if it needs them.
What is the short GIFI form?
Form T1178 is for corporations with gross revenue and assets both under $1 million that don't use return preparation software.
Does a sole proprietor need a balance sheet?
Not for the CRA. You report income and expenses on form T2125 with your personal return, though a lender may want more.
Do I need a cash flow statement?
We found no CRA requirement for one. A lender or investor may ask for it.
- Self-employed taxes in Canada: income, CPP and GST
How tax works when you are self-employed in Canada: reporting income and expenses, paying both halves of CPP, instalments and when to register for GST