Basics, CRA & Revenu Québec, Self-Employed, Tips & Advice

Canadian Tax Responsibilities When Closing a Business

There is more to closing a business than announcing an end date, putting up an “Out of Business” sign, and closing the doors forever.  When you decide to close your business (a sole proprietorship, partnership or corporation) and no longer need your Business number (BN) with the Canada Revenue Agency (CRA), you will need to notify the CRA, file your final returns and pay any outstanding balances before the BN, and then the business can be officially closed.

Closing Business Accounts

The first item to take care of is your business’ accounts. Essentially, everything you opened at the start of your business needs to be closed, including your registration, corporation, and tax accounts.

Here is a list of things that the CRA expects to be closed:

  • Cancel your business registration for your sole proprietorship or partnership OR
  • Voluntarily dissolve your corporation
  • File a last tax return, if you have dissolved a corporation
  • Close your RST/PST/QST account(s) with the appropriate provincial agency
  • Close your payroll account(s) with the CRA, and
  • Close your GST/HST account(s) with the CRA

These can only be done provided there is no balance owing to the Canada Revenue Agency, or with any provincial agency.  If there is a balance owing, or returns or filing outstanding, the government can prevent you from closing the business and knowing that you are closing, could step-up collections actions.

 

Notice of Dissolution

Dissolving a corporation is the legal act of ending its existence.  Every Canadian business must file a Notice of Dissolution at the time of closing.  Partnerships and sole proprietorships will file a “Dissolution or Change of Proprietorship (or Partnership).”  Meanwhile, corporations will file an “Application for (Voluntary) Dissolution.” Both of these forms have to be filed with the provincial Corporate Registry office.

 

Payroll Accounts

When you are closing your business, within one week of the official end date, you must remit all outstanding:

  1. Payroll deductions from employees wages to the CRA
  2. Pension contributions to the CPP/QPP
  3. Employment insurance premiums

You also have 30 days to complete and file any outstanding T4 or T4A slips and summaries of pension, retirement, annuity, or any other income due to employees or other people or entities related to your business.

 

Close Your GST/HST Account

Once you are ready to close your GST/HST account, you will need the following information:

  • Business number
  • Legal name of the business
  • Cancellation date and the reason for closing the GST/HST account

Once you have this information you will need to:

  1. Determine the GST/HST owing on non-capital property held at the time of closing (this includes commercial goods and property not considered capital property).
  2. Determine the GST/HST owing on capital property held at the time of closing (this includes investments such as land or property).
  3. Adjust your ITCs for services, rents, royalties, and similar payments at the time of closing
  4. File your final GST/HST return and remit any outstanding amount owing

 

In all cases, you’ll have to determine and pay the outstanding GST/HST amounts to the CRA after closing your business. You’re responsible for paying these amounts within a month of closing your GST/HST account, regardless of when you usually file your GST/HST return. This return should include all the information from the first day of the fiscal year to the day your business closed.

Any GST/HST you collect after you close your account and before the end of the month need to be filed. This information will have to be filed on a separate GST/HST return.

 

File Your Final Tax Return

You’ll need to file a final tax return for your business. In this final return, be sure to include a copy of the Articles of Dissolution for the CRA.  If you don’t, the CRA will assume the corporation still exists and will expect you to continue to file an annual tax return, even if there is no tax payable.

If a balance remains after the business has closed, the CRA will continue to collect on that balance owing to them, regardless if it is a partnership, sole proprietorship or corporation.

 

Another Approach

Another approach, is to complete and file form, RC145 Request to Close Business Number (BN) Program Accounts with the CRA. This allows you to complete three operations at once: closing payroll accounts, forwarding GST/HST, and filing the appropriate notice of dissolution.  If there are any outstanding issues, like missing returns or balances owing, the CRA will notify you as they will need to be taken care of before the company is closed.

Closing a business thoroughly and properly, ensures that there will be no issues with the CRA at a later date.

 

Ensure that if you have an active business – active as in not closed – and have moved, that you notify the CRA of the current address in case something comes up in the closing process which they need your input on.

Closing it right the first time can save you from financial headaches in the future.