Tax Obligations after Closing your Business

There are certain things you need to do if you are planning to close your business. This includes notifying the Canada Revenue Agency (CRA), paying any outstanding tax amounts, filing a final tax return and financing your succession planning.

You won’t need your Business Number and there are certain forms you’ll have to fill out before the account can be closed.

To-Do List

We’ve put together a useful list to help you keep track of all the things you need to do in order to close your business.

  1. File all outstanding returns and make sure that they are up-to-date.
  2. Resolve any balances that are outstanding
  3. Cancel your business registration for your sole proprietorship or partnership
  4. If you were running a corporation then voluntarily dissolve your corporation
  5. If you dissolve a corporation, make sure that the final return is filed with the end date being the date on which it stopped operating.
  6. Close your RST/PST/QST accounts with the appropriate provincial agency.
  7. Close your payroll accounts with the CRA
  8. Close the GST/HST account with the CRA – make sure that the final GST/HST return has the end date reflecting the business entity’s last day.

Dissolving your Corporation

Dissolving your corporation means that you are taking legal steps to end its existence. This is similar to when you set up the corporation. You undertook some formal procedures to create it and now you have to file forms with the appropriate government offices to close it. Remember, you can get guidelines from your corporation’s registrar on dissolving the business.

Before filing the articles of dissolution, confirm the following.

  1. You have the authority to dissolve the business
  2. All of the required tax forms have been filed
  3. The corporation is in good standing
  4. Remaining assets, liabilities or property have been distributed

Closing CRA Accounts

Filing the “RC145 Request to Close Business Number (BN) Program Accounts” form with the CRA will allow you to complete the following three operations needed to close a business.

  1. Closing payroll accounts
  2. Forwarding GST/HST
  3. Filing appropriate sole proprietorship, partnership or corporate notices of dissolution.

Remitting Deductions from Payroll Accounts

It is very important to remit all deductions payroll deductions from your employees’ wages to the CRA within seven (7) days of closing your business. This includes all outstanding pension contributions (CPP/QPP) and employment insurance (EI) premiums.

You also have thirty (30) days to file any outstanding T4 or T4A slips, summaries of pension, retirement, annuity or any other income due to your employees or anyone else related to your business.

This is very important because if any former employees believe that their deductions were not remitted then they can report the employer to the CRA.

GST/HST Closing Payments

Businesses operating in Canada collect GST/HST taxes, hold them in trust and periodically forward these payments to the CRA.

Immediately after closing your business you need to account for and pay any outstanding GST/HST taxes. You will need to make two separate calculations, one for amounts owing on capital property and the other for amounts owing on non-capital property.

Capital property includes most investments including land and buildings. Non-capital property will include all other kinds of commercial goods and property. In some cases, there might be an investment tax credit recapture due when the business closes. Provinces with a GST might require a provincial or retail sales tax due as well. Be sure to discuss this in detail with your tax advisor.

Dissolution Notice and Final Tax Return

You will need to file a Dissolution Notice at the time of closing your business. Sole Proprietorships and Partnerships file a “Dissolution or change of Proprietorship (or Partnership)” with the provincial Corporate Registry.

Corporations file an “Application for (Voluntary) Dissolution” with the provincial Corporate Registry office and they also need to file a corporate tax return with a copy of the corporate articles of dissolution with the CRA.

If corporations don’t complete this paperwork, the CRA will ask for corporate filings in one or more subsequent tax years even though the corporation has no income to declare.

Future CRA tax debt could also be added to the corporation if these filings are not done. This could result in the CRA raising Director’s Liability against the directors or the raising of s.160/s.325 non-arm’s length assessment to recapture any dividends paid out while the corporation owed money to the CRA.    

In case you ever find yourself in a situation where you need to close down your business, the team at Syed A.Raza Professional Corporation will help you through the entire process. We'll also available to advise you on your specific tax and accounting issues. Get in touch with us for a free consultation.

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