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Tax Formalities of Business Restructuring or Changes in Ownership

June 15, 2016

In our earlier article: ‘Liquidation of a Canadian Company from a Tax Administration Perspective’, we discussed the tax process involved when dissolving a Canadian company. However,  what if the business owner is simply restructuring the business? What if there is a change in ownership due to growth, tax planning or other business needs?

As with liquidation any legal status change in a business, or change in the ownership or directors of the business, requires the closure of the existing business number and Canada Revenue Agency (CRA) accounts and registration of new ones.

At AG Tax, we often have our corporate clients consulting us for tax compliance in restructuring situations. These clients are often  taken by surprise when they are informed of the tax compliance requirements. Therefore, to help business owners make a better tax decision, AG Tax analysts have prepared a brief overview of the steps involved when there is a change in the owners or directors of a company.

Change in Business Ownership

In the case of a sole proprietorship, as the business is individually owned, a change in ownership or sale of business would lead to the closure of the business number (BN) and all related CRA accounts. Please see our article on liquidating your company for more details.

If the business were sold, then the old owner would need to close the BN, and the new owner would need to register for a new BN.

A change of partners will have a different impact on the business depending on the partnership agreement and whether or not the business was registered using the legal names of each partner or the provincially registered partnership operating name. In some cases, if there is a change in the partners, it may be considered an entirely new partnership, and therefore subject to closure of the old BN, and a requirement to register for a new one.

The same process applies for corporations. However,  they need to provide the name of a director and their correct Social Insurance Number (SIN), because if a corporation (including for-profit or non-profit corporations) fails to deduct, withhold, remit, or pay amounts held in trust for the Receiver General for Canada, the directors of the corporation at the time of the failure may be held personally liable along with the corporation to pay the due amount. This may include penalties and interest.

This change in BN can be done by filing Form RC145, Request to Close Business Number (BN) Program Accounts.

Change in Employees Status & Succession of Employees

Previously, when an employer restructured, employees were treated as if they had joined a new employer. This would often occur as a result of a winding-up and immediate reconstruction under a different legal structure, or when one employer acquired a major or distinct part of another employer’s property or business. As a result, the “new” employer had to begin withholding CPP contributions and EI premiums all over again without considering the amounts withheld by the “previous” employer. However, these regulations changed to read: “in case of any succession or change in ownership on or after January 1, 2004, the new employer, with the agreement of the former employer or by operation of law, upon immediate succession due to formation, dissolution or acquisition of the former business, may consider the amounts deducted, remitted, or paid under the CPP and/or the EIA by the former employer for the year for the employment of the employees as if they had been deducted, remitted, or paid by the successor/new employer for the old/continuing employees.” This means that as long as all parties are in agreement the employees of the dissolved company can be rolled over to the new company without the payroll deductions being reset.

Change in company structuring and ownership can be a complicated process since it often leads to the government and tax authority treating it as a completely new incorporation. This requires companies to comply with endless tax and legal formalities which can be time-consuming, and expensive if not done correctly. It is highly recommended that in such situations, proper consultation should be done before and after the re-structuring to strategize the change in a tax friendly, and compliant, way.

AG Tax LLP Can Help

If you wish to discuss further on the above issue, or have any tax-related queries or need assistance with tax planning or 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., Canadian, 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
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OFFICEEdmonton
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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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