Every transfer needs a name on the day it moves
The tracking problem is really a naming problem. Money moves between your companies for a handful of reasons, and each reason is a different transaction with different tax, HST and paperwork consequences. The five names cover almost everything that happens in a real estate group:
| Why the money moved | Record it as | The paper behind it |
|---|---|---|
| One company covered another's shortfall or funded its project | An intercompany loan | A loan agreement with amount, terms and repayment; matching due-to and due-from entries |
| One company occupies or uses another company's property | Rent under a lease | A written lease at a defensible rate; invoices, with HST where the space is commercial |
| One company's staff manage the whole portfolio | A management or service fee | A management agreement and actual monthly invoices, with HST |
| Profit moved up the ownership chain | A dividend or return of capital | A directors' resolution; only available along actual share ownership lines |
| One company paid a bill that belonged to another | A reimbursement at cost | The underlying invoice, re-billed to the right company |
The habit that makes this work is naming the transfer when it happens, not at year-end. A December cleanup means your accountant is guessing at what a March transfer was for, and a guess recorded under audit pressure is worth very little. The name also constrains what is possible: a dividend can only flow where shares are actually held, so two sister companies with no ownership link cannot move profit between themselves with a resolution; they need a loan, a fee or a charge with substance behind it.
Notice what is not on the list: the unlabelled transfer that just sits in a clearing account. In a group of any size those accumulate into a balance nobody can explain, and unexplained balances are the single most common reason real estate groups fail a lender review or spend a CRA audit on the back foot.
The ledger mechanics: one account per relationship, mirrored monthly
Set up a separate due-to and due-from account for each pair of companies, not one lump called intercompany. If Holdco deals with three subsidiaries, Holdco carries three receivable accounts and three payable accounts, and each subsidiary carries its mirror. The structure sounds fussy and pays for itself the first time anyone asks who owes what to whom, because the answer is a trial balance line, not an investigation.
The monthly discipline is the mirror test: company A's receivable from company B must equal company B's payable to company A, checked every month across every pair. When the mirrors disagree, one side missed an entry, and finding it now takes minutes while finding it in eleven months takes days. The same monthly pass accrues interest on any loan that bears it, and applies a proper cutoff so a transfer in transit at month-end lands in the same period on both sets of books.
Two rules keep the system honest. First, never net across relationships: A owing B and B owing C does not collapse into A owing C without actual assignments, because each balance is a real legal claim of one corporation against another. Second, settle balances deliberately, by payment, by dividend where ownership allows, or by documented set-off where two companies owe each other, rather than letting them drift for years. Any mainstream accounting software handles all of this; the constraint is discipline, not tools.
The paper is what CRA and your bank actually test
An entry without a document behind it fails when tested, and intercompany charges get tested from two directions. CRA's interest is characterization: a management fee deducted by one company must be matched by real services, a real agreement and real invoices, and where it is not, the deduction can be denied in the paying company while the receiving company has already been taxed on the income. That outcome, double tax inside your own group, is the standard price of undocumented fees.
Rent between your companies needs the same substance: a written lease, a rate you could defend against what an outsider would pay, and consistent invoicing. The common pattern of an operating company using a sister company's building rent-free distorts both companies' numbers, misstates which entity is actually profitable and quietly builds an intercompany balance nobody is recording. Charging a defensible rent fixes the economics and creates the paper trail in one move.
Your lenders read the same file for different reasons. Covenants are computed on each borrower's statements, and intercompany balances swing those ratios; a bank that cannot tell whether a receivable from a related company is collectible will discount it to zero and may require it postponed behind their loan. When a credit review asks what a balance is and the answer takes three weeks, the file stalls. How lending against the group works when balances are loans specifically is covered in how intercompany loans affect a corporate group.
HST applies between your own companies unless an election says otherwise
Charges between related companies are still supplies for GST/HST purposes, however much it feels like moving money from one pocket to another. Management fees carry HST. Rent on commercial space carries HST. The receiving company collects and remits; the paying company recovers the tax through input tax credits only if it uses the supply in commercial activity. In a group earning taxable commercial rents, the tax washes through with a timing cost; in a group of residential landlords, whose rents are exempt, the HST on intra-group fees is not recoverable and becomes a real cost of the structure.
There is an election that can switch this off, but its conditions exclude many real estate groups. Closely related Canadian corporations can jointly elect, on form RC4616, to treat certain supplies between them as made for no consideration, so no HST applies. The catch is that each party must qualify, broadly by being engaged essentially entirely in commercial activities, and a company whose business is exempt residential rent generally does not. Whether your group qualifies, entity by entity, is worth an hour of analysis before anyone assumes the election covers them.
The practical takeaway: price the HST into the design of your intercompany charges. Sometimes a cost reimbursement structure, a different placement of employees, or simply fewer intra-group charges produces the same economics with less unrecoverable tax, and that is a design decision to make deliberately rather than inherit.
Source: CRA — Form RC4616, election for closely related corporations.
The consolidated view: entity books, one group cash schedule
Each corporation keeps complete books of its own, and the group runs on one consolidated cash flow schedule that nets the intercompany activity out. The entity books are what CRA, the corporate lawyer and each lender are entitled to see; the consolidated schedule is what you manage from, because it shows the group's true position once internal flows cancel: real rent in, real mortgage payments and operating costs out, and where cash is pooling or draining. Groups that manage entity by entity routinely discover that every company looks fine while the group as a whole is short.
The consolidated view also feeds decisions. It is the starting document for any financing package, since lenders ultimately want to know whether the whole group services its debt. It reveals when the structure itself is the problem: a web of balances that exists only because there are more companies than purposes is an argument examined in whether related real estate corporations should be amalgamated, and a group where risky operations and property sit tangled together is the subject of separating property ownership from operating risk. Clean intercompany records are what make either restructuring cheap; messy ones are what make it forensic.
What changes the answer
Five facts decide how much system your group needs and where the risk concentrates:
- How many entities and how they are owned: ownership lines determine where dividends can flow, and everything else must be a loan, a fee or a charge.
- Residential, commercial or mixed: which sets whether HST on intra-group charges is recoverable and whether the nil-consideration election is available.
- Where the people sit: one company employing everyone means management fees, agreements and invoices are structural, not optional.
- What your lenders require: covenants and postponement agreements dictate how balances must be presented and settled.
- How long the backlog is: a year of unnamed transfers is a cleanup; five years is a reconstruction, and it gets worse at the worst moments, a refinancing, an audit or a death.
That last point is the quiet one. When shares must be valued for a sale, a freeze or an estate, the intercompany balances are part of every company's value, and an executor cannot settle anything until they are real; untangling them is often the first job a business estate planning CPA in Ontario does on a file. Keeping the system running monthly, entity books, mirror tests, invoices and the consolidated schedule, is the core of our Ongoing Financial Partnership for property groups. If yours needs a cleanup first, we scope that as a defined project, starting with a free 15-minute discovery call.
