A monthly close is the discipline of reconciling a corporation’s books at the end of each calendar month. For an incorporated IT contractor, it is the practice that keeps the shareholder loan current, confirms the GST/HST position, and ensures the financial picture is accurate when planning decisions need to be made. Without it, the first reliable snapshot of the corporation’s finances often does not appear until the T2 is being prepared, at which point compensation, shareholder loan, and instalment decisions for the year have already been shaped by the passage of time rather than by deliberate choices.
The monthly close is not a legal filing obligation. CRA does not require a corporation to close its books each month. The reason to do it is practical: the decisions that affect corporate and personal tax outcomes for the year are made throughout the year, and they require current numbers. A close done twelve months after the fact can only report on what happened. A close done one month after the fact can still influence it.
What a Monthly Close Involves
A monthly close reconciles and categorizes the transactions that occurred in the corporate accounts during the month. The core activities are the same regardless of the size of the corporation or the volume of transactions.
Bank and credit card reconciliation. Every transaction that passed through the corporate bank account and any corporate credit cards is matched against the corresponding record in the accounting software. Unreconciled items, such as payments that appear in the bank feed but have not yet been categorized, or entries in the books that do not yet correspond to a bank transaction, are identified and resolved. The bank balance at month-end should agree with the balance in the accounting software after reconciliation.
Transaction categorization. Each bank and card transaction is assigned to the correct account: professional fees revenue, software subscriptions, professional development, home office, vehicle, or any other category relevant to the corporation’s chart of accounts. Transactions that are personal in nature and have passed through the corporate account are flagged and posted to the shareholder loan account, not to a business expense category.
Accounts receivable review. Outstanding invoices issued during the month are confirmed in the books. Any invoice issued but not yet collected is tracked as an accounts receivable balance. The review checks that invoiced amounts, including GST/HST charged, are recorded correctly and that any payments received during the month have been applied to the correct outstanding invoice.
Payroll reconciliation. If salary was paid during the month, the payroll entries are confirmed: gross salary recorded as an expense, source deductions withheld posted to the payroll liability account, and the remittance to CRA reflected when it is made. The employer CPP contribution is also recorded. For Quebec corporations, the payroll reconciliation captures QPP and QPP2, QPIP, and HSF instead of treating Quebec payroll as a CRA-only remittance.
GST/HST account. The GST/HST charged on invoices issued during the month and the input tax credits (ITCs) for GST/HST paid or payable on eligible business expenses are tracked in the GST/HST liability account. This happens even if the corporation files GST/HST annually. The monthly tracking ensures the liability is current and that no collected tax is being treated as available revenue.
Shareholder loan account. The shareholder loan balance is updated to reflect any draws taken from the corporate account, personal expenses that passed through corporate, and any salary or dividends declared and applied against the balance during the month. The running balance after the monthly close shows the current position.
Bank and Credit Card Reconciliation in Practice
The reconciliation step is where the books are tied to the source of truth: the bank statement. A reconciliation that cannot be completed because of unmatched transactions indicates either a posting error in the accounting software, a transaction that has not yet been entered, or a timing difference between when the bank processes a transaction and when the software records it.
For most incorporated IT contractors with a moderate volume of transactions, the monthly reconciliation is manageable. Bank feeds in accounting software pull transactions automatically, reducing manual entry. The categorization step takes more time than the matching step when it is done monthly. If categorization is deferred for several months, the accumulated unreviewed transactions make the task significantly more time-consuming and increase the likelihood of miscategorization.
Timing differences are normal. A cheque written near month-end may not clear the bank until the following month. These items appear on the books as outstanding and should reconcile against the next month’s bank statement. A persistent unreconciled item that does not clear is not a timing difference; it is an error that needs investigation.
Tracking GST/HST Through the Month
Many IT contractor corporations file GST/HST annually, particularly when annual taxable supplies are $1.5 million or less and no more frequent period has been elected. An annual filing schedule does not mean GST/HST only matters once a year. GST/HST charged on an invoice issued in February belongs in the reporting period that includes the invoice date, even if the client has not paid yet. Including it as available revenue in the interim is a cash management error that becomes a remittance problem later.
The monthly close separates GST/HST collected from revenue by ensuring invoiced amounts are recorded with the tax portion in the GST/HST payable account, not in the revenue account. Similarly, input tax credits on eligible business expenses are accumulated in the GST/HST receivable account when the tax is paid or becomes payable and the corporation has the invoice support required for the claim. The net position, collected tax minus ITCs, is the estimated GST/HST liability at any point in the year.
For corporations that are annual filers with prior-year net tax of $3,000 or more, quarterly instalment obligations may apply. The GST/HST filing guide covers the instalment schedule in detail. A monthly close that tracks the GST/HST balance confirms whether the instalments being made are in line with the current year’s liability.
The Shareholder Loan Account Month by Month
The shareholder loan account is one of the highest-value outputs of a monthly close for an incorporated IT contractor. The shareholder loan guide covers the rules in detail. The key point for monthly close purposes is that the balance is a running total of all draws, personal expenses, and unresolved transfers since the last compensation event.
A monthly close that categorizes all transactions ensures draws are posted to the shareholder loan account when they occur, not accumulated in an unclassified holding account until the year-end review. This means the running balance after each monthly close reflects the actual position. When the year-end review conversation happens, the shareholder loan balance is known. The compensation decision does not need to reconstruct the history from scratch.
A corporation whose books are only reconciled at year-end may discover a shareholder loan debit balance much larger than expected, with limited time left in the fiscal year to address it through salary or dividends before the fiscal year closes and the section 15(2) repayment window starts running.
Accounts Receivable and Invoicing
Outstanding invoices represent money the corporation expects to receive but has not yet collected. Tracking these monthly ensures the corporation has an accurate picture of its financial position, not just its cash position. A contractor who looks only at the bank account balance is seeing cash, which may significantly understate the corporation’s total assets if several invoices are outstanding.
The accounts receivable aging summary, which organizes outstanding invoices by how long they have been outstanding (30, 60, or 90 days), is a straightforward output of a monthly close. For most contractor corporations with a small client base, there are few outstanding invoices at any given time, and the aging review is brief. Identifying a 60-day outstanding invoice early gives time to follow up before it becomes a collection issue.
GST/HST charged on outstanding invoices has already been included in the GST/HST payable account. CRA expects the GST/HST charged on an invoice to be reported for the period that includes the invoice date, whether or not the client has paid the invoice. Collecting the GST/HST from the client, and managing the cash flow between invoicing and collection, is a cash management consideration, not a tax deferral.
What the Monthly Numbers Enable
The primary value of the monthly close is that it produces current numbers at regular intervals throughout the year. Those numbers enable decisions that would otherwise be made too late.
Compensation planning during the year. If the monthly close shows that the shareholder loan debit balance has grown substantially, the contractor and their CPA can consider whether a salary payment or dividend declaration before year-end makes sense, rather than discovering the balance at year-end when options are more constrained.
Corporate income projection. The monthly close accumulates revenue and expense categorizations that allow a current-year income projection at any point in the year. That projection informs the estimated corporate tax payable, the instalment obligation, and the compensation mix that optimizes the combined corporate and personal tax position. An annual close produces this projection once, and too late for most planning actions.
GST/HST instalment management. For corporations with quarterly GST/HST instalment obligations, the monthly close confirms whether the required instalments are being made on time and whether the final balance is building faster than expected. If the corporation is using the prior-year safe-harbour method, current-year revenue growth can still create a larger final balance, but it does not by itself create instalment interest if each instalment is one quarter of the prior year’s net tax and is paid in full and on time.
Cash flow visibility. Knowing the current shareholder loan balance, outstanding receivables, and GST/HST liability at the end of each month gives the contractor an accurate picture of the corporation’s liquidity. Cash in the corporate account minus the GST/HST liability and the remittance owing on salary is the amount that is genuinely available for draws or distribution.
Monthly vs Quarterly Close
Not all incorporated IT contractors have sufficient transaction volume to justify a true monthly close. A contractor with one client, one invoice per month, and minimal expenses may find that a quarterly close achieves the same result with less overhead.
Quarterly closing works when transaction volume is low, payroll is not a recurring event, and the GST/HST filing period is quarterly or annual without instalments. When payroll is processed monthly, a monthly close is the more natural cadence because the payroll reconciliation is already happening.
The important threshold is not monthly versus quarterly; it is whether the books are current enough to support planning decisions before the fiscal year closes. A quarterly close done consistently and accurately serves that purpose for many contractor corporations. Annual-only reconciliation generally does not.
Who Does the Monthly Close
The monthly close can be done by the contractor, a bookkeeper, or a combination. The appropriate arrangement depends on transaction volume, complexity, and the contractor’s time.
A contractor with accounting software connected to their corporate bank account, a modest expense volume, and a single client can often handle the categorization and reconciliation themselves. The risk of DIY bookkeeping is not the mechanics, which are straightforward, but the categorization decisions: which expenses are deductible, how to handle a personal charge on the corporate card, whether a particular software subscription is fully deductible. Those questions should be resolved with a CPA, not worked around with best guesses.
A bookkeeper who handles data entry and categorization reduces the contractor’s time involvement. The CPA’s role in this arrangement shifts to reviewing the monthly or quarterly output, catching categorization errors, and raising planning questions suggested by the numbers. The CPA does not reproduce what the bookkeeper has already done; they review, correct, and advise.
For a single-person corporation, the relationship between the contractor, the bookkeeper, and the CPA should be clear about who is responsible for which part of the close and how errors in categorization are corrected before they flow into the T2.
Quebec Perspective
For Quebec-resident incorporated IT contractors, the monthly close involves tracking two parallel tax accounts: the GST/HST account and the QST account. The QST registration guide covers the registration side. For monthly close purposes, the QST collected on Quebec supplies and the input tax refunds (ITRs) generated by business expenses are tracked in the same way as the GST/HST account, but as a separate balance.
Revenu Québec administers QST and, under its agreement with the federal government, administers GST/HST in Quebec for most registrants. The monthly close should still keep GST/HST and QST as separate balances in the ledger, because GST/HST collected, QST collected, ITCs, and ITRs must be reconciled separately even when the reporting periods are aligned. A monthly close that updates both balances gives the contractor a current picture of the combined consumption tax liability.
For Quebec corporations with payroll, the HSF contribution accrues through periodic remittances based on an estimated contribution rate. A monthly close that captures payroll also captures the HSF obligation, which is then confirmed at year-end on the RL-1 summary when the actual annual rate is determined using total payroll and sector.
Common Issues
No regular close, then a year-end scramble. A corporation whose books have not been touched since the prior T2 filing puts its CPA in the position of reconstructing a year’s worth of transactions at filing time. The reconstruction is possible but expensive and slow. More importantly, the year-end planning conversation cannot happen because the numbers needed for it do not exist until the reconstruction is complete, which may be months after the fiscal year closed.
Draws categorized as expenses. A draw from the corporate account that is categorized as a business expense reduces reported corporate income without a corresponding business expense. Correcting this at year-end requires identifying all miscategorized draws and reclassifying them to the shareholder loan account. If prior T2s were filed with the same error, amendments may be required.
GST/HST not separated from revenue. An accounting software setup where invoiced amounts are posted in full to revenue, without separating the GST/HST component, overstates revenue and understates the GST/HST liability. This error is easy to introduce and easy to miss if the books are not reconciled against the GST/HST payable account regularly.
Personal expenses buried in business categories. A personal purchase categorized as office supplies or a personal subscription categorized as software affects both the corporate expense claim and the shareholder loan balance. The expense claim may be denied by CRA on audit. The shareholder loan balance understates the actual amount owed to the corporation. Monthly categorization review catches these before they compound.
Receivables not tracked. A contractor who does not track accounts receivable may not notice that an invoice outstanding for 90 days has not been followed up. The GST/HST on that invoice is owing to CRA whether or not the client pays.
The monthly close is the operational foundation for a well-managed incorporated contractor file. It keeps the accounts current, makes the shareholder loan visible, and ensures the year-end review has something to work with. A CPA who reviews a monthly close has the information needed to identify planning opportunities and flag problems before the fiscal year closes and the window for action narrows.