There are just as many reasons for ending a small business as there are for starting one. Maybe the hours are long, and the magic is gone. Maybe the risks are outpacing the rewards. Perhaps it’s simply time to retire, or launch a whole new venture. While no two sole proprietorship stories are alike, the process for settling your tax obligations to the CRA is reassuringly consistent and straightforward.
If you’re ready to go, here’s everything you need to know to close this chapter and clear the path to your next adventure.
- Walking away from your small business without letting the CRA know may cause legal or tax problems down the road, even if you are a sole proprietor.
- Be aware that different provinces have different requirements around closing a sole proprietorship.
- If you have employees, the CRA expects you to remit payroll withholding taxes within 7 days of shutting your business.
Why do I need to formally close my small business?
While it might seem easier to just walk away from your business, especially if it isn’t active or making money, the decision may come back to haunt you down the road.
If you don’t let the CRA in on your decision, they’ll assume everything is business as usual and continue to expect a tax return every year. Also, if a client or supplier decides to pursue legal action, you’ll open yourself up to liability, months or even years from now.
To nip these looming loose ends in the bud, a little housekeeping goes a long way.
What steps should I take to close my small business and settle my tax obligations?
Those bank accounts, contracts, tax liabilities, and financial obligations you built up while running your business? It’s time to settle or dismantle them. Here’s how:
- Take care of the taxman. File all your outstanding returns and pay any outstanding tax amounts.
- Cancel your business registration. File the “RC145 Request to Close Business Number (BN) Program Accounts” form with the CRA. This lets them know you are shutting down your business.
- Make it real by telling your people and settling your accounts. Let everyone in your business orbit know what’s going on, including clients, vendors, and suppliers. Then, follow-up by settling all outstanding accounts, bills, and debts.
- Close all business accounts. Close your business bank account(s) as well as all CRA accounts, including payroll, and GST/HST.
- Double-check for requirements specific to your province or territory, including de-registering your business provincially and closing your RST, PST, and/or QST accounts.
TIP: Got employees? Be on the ball about remitting payroll withholding taxes, providing records of employment, and filing T4 and T4A slips. Once the CRA knows your business is closing, it expects action on these items asap.
Watch this video where our resident tax expert, Emily, shares five steps in settling your tax obligations when closing your business.
Whether shuttering your small business is a relief, a joy, or a necessity, taking the time to do it right will provide the closure you need to reflect on the experience, move on with confidence, and never look back. Why put off until tomorrow what you can do today?
