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Liquidation of a Canadian Business from a Tax Administration Perspective

June 14, 2016

There may come a time when a Canadian business owner no longer wishes to continue their business, and would like to liquidate or wind up the company. Often people assume that by simply stopping the business activities and services, a business is closed, but that’s not the case.

By liquidating a company, the individual is inviting trouble from the Canada Revenue Agency (CRA). In order to cease operations the business owner needs to follow a specific process to liquidate their business in a tax compliant way. Avoiding these steps could lead to penalties and interest.

In this article, AG Tax Analysts have outlined the basic procedure of dissolving a company in Canada from a tax administration perspective. It is always advisable to consult a tax professional in cases such as these, since each tax situation varies and proper recommendations can be provided only after a thorough analysis of one’s tax situation.

Liquidating your Canadian Business

When a business owner decides to close their business (sole proprietorship, partnership, or corporation), they need to get the registered business name cancelled, and also cancel the business number (BN, a number provided by the CRA to the business upon registration for corporate tax purposes) in order to close their business/corporate tax accounts, and file the final tax return for the company, as well as a notice stating that all tax dues and other payments have been cleared.

Let’s now briefly discuss each of these steps:

Cancelling Business Number (BN) or Closing CRA Tax Account

In order to dissolve the corporation, the owner needs to send an application for dissolution along with Form RC145, Request to Close Business Number Program Accounts to the government body that governs the affairs of your corporation. This form allows business owners to complete three operations required when closing a business: closing payroll accounts, closing the GST/HST accounts, and filing appropriate sole proprietorship, partnership or corporate notices of dissolution.

Clear Taxes & Payroll Deductions

The business owner needs to remit all outstanding CPP/QPP contributions, EI premiums, and income tax deductions to the applicable CRA Tax Centre. This should be done within seven days of business closure, Form RC145 is used for this purpose as well. T4 and T4A slips and summaries also need to be filed and sent to the Ottawa Technology Centre within 30 days of the day your business ends.

GST/HST Closing Payments

If the business collects GST/HST, any outstanding payments need to be remitted to the CRA immediately after closing the business. Two separate calculations need to be carried out, one for the amount owing on non-capital property (commercial goods and property) and another for amount owing on capital property (such as: land, buildings, any machinery, etc.).

Dissolution Notice & Final Tax Returns

Filing a dissolution notice at the time of business closure is an absolute must for all registered Canadian businesses, be it sole proprietorship, partnership or corporation.

While sole proprietors and partnerships need to file a “Dissolution or Change of Proprietorship (or Partnership)” form with their applicable Corporate Registry office, corporations need to file an “Application for (Voluntary) Dissolution” with their Corporate Registry office.

This dissolution notice should be sent to the CRA with the final corporate tax return along with a copy of the corporate articles of dissolution and Form RC145.

Failure to do so, may result in the CRA assessing the corporate filings for one or more subsequent tax years, even if there is no income to declare.

No matter what the business situation is, proper tax planning is an absolute necessity since each business type is treated differently from a tax viewpoint. Not being aware of the compliance procedure and making decisions without considering the tax impact could severely jeopardize your business plan.

AG TAX LLP Can Help

If you still have any queries regarding dissolution, change in ownership, or any other tax-related queries, and/or need assistance/help with tax planning/filing please contact AG Tax. Our tax professionals are highly-experienced with U.S. and Canadian tax laws and can provide you the right guidance to handle your tax situation.

Aylett Grant Tax LLP is a full service accounting firm with a dedicated team of experts, who are highly-qualified and experienced in handling situations related to U.S., Canada and other international tax laws.

We can assist with:

  • Canadian Personal and corporate tax returns
  • Cross Border Taxation and Business Planning
  • U.S. Personal and Corporate Taxation
  • Disclosure of Foreign Assets and other information filings
  • Retirement planning
  • Estate Planning, Inheritance tax advice

To obtain a quote or to arrange for a consultation to discuss your tax related queries, please contact us at:

  • 416-238-5920 (Greater Toronto Area, ON)
  • 604-538-8735 (Greater Vancouver Area, BC)
  • 780-702-2732 (Greater Edmonton Area, AB)

 

Disclaimer: The information in this publication is accurate as of the time of its publication. AG Tax assumes no responsibility for changes to tax legislation subsequent to the publication of this document. The information provided is for general information purposes only and should not be acted upon without seeking professional advice. If you would like to engage our services, please contact our staff and obtain authorization to send our firm confidential information. A client relationship is not created by the transmission of information. A client relationship is only formed with our firm when a scope and engagement letter signed by the firm and the potential client detailing the terms of engagement is present.

ABOUTAylett Grant Tax, LLP
With offices across Canada, we are positioned to manage and process the full scope of your Canadian, US and US Canada cross-border tax filing needs.
OFFICEVancouver
12752 28th Ave, Surrey, BC, V4A 2P4
OFFICEEdmonton
104–4220 98 St NW Edmonton AB, T6E 6A1
ABOUTAG Tax LLP
With offices across Canada, we are positioned to manage and process the full scope of your Canadian, US and US Canada cross-border tax filing needs.
OFFICEVancouver
12752 28th Ave, Surrey, BC, V4A 2P4
OFFICEEdmonton
104–4220 98 St NW Edmonton AB, T6E 6A1

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