Having your own business is a thrilling and hectic experience. Unfortunately, the enterprise does occasionally come to an end. Do you know how to dissolve a corporation in Canada with legal procedures? The information in this manual will assist you in understanding how to dissolve a corporation in Canada and the tax repercussions of doing so.
Typically, businesses close for the following reasons:
- Business closure: either the proprietor is just worn out or the business wasn’t successful!
- Incorporation error: the corporation must now be dissolved after it was established without full comprehension of the consequences.
- One can only hope that this is not the end of your business career and that you have learned a lot for your upcoming project.
How to Dissolve a Business in Canada?
This is the official legal way to dissolve a corporation in Canada. Since the articles of dissolution are in draught form. The procedure involves forms on your behalf by a lawyer or notary public.
In some provinces, you can use an online registry service to submit your own articles of dissolution. For instance, in British Columbia, you can dissolve your corporation immediately or by selecting a future effective date via the BC Registry Services.
For continued existence, corporations must submit an Annual Report to the government. You have the option to forego filing the annual reports and let the business collapse on its own after a few years.
The corporation continues to file tax returns. You have two options for filing these straightforward nil returns: you may do it yourself using our form, or you can hire an accountant to do it for you. Swift accounting and business solution accountants are always available to file tax returns for a dissolve corporation in Canada.
Canadian Dissolve Corporation Legal Procedure
How to Manage Assets When Shutting Down a Canadian Business? Sell any investments or capital assets to third parties for money. You can examine your prior year’s tax return or contact your accountant for the current tax value (undepreciated capital cost – UCC) of your assets.
Alternatively, you can simply transfer ownership to yourself for revenues equal to the asset’s tax value.
- How to Handle Liabilities in Canada When Closing a Business
Determine that before dissolving a corporation, pay off all debts including loans, credit card payments, taxes, and other obligations.
Any credit card accounts may be closed once they have been settled.
- Make sure there is no further business activity
Through canceling any PAD contracts, recurring credit card payments, corporate credit cards, or bank accounts.
Last but not least, confirm that all operations have genuinely ended and that the corporation will not be active again (ie. No more sales or expenses).
- Shutter down your business’s bank accounts
One can terminate your company bank account and transfer any remaining funds to your personal account after you’re certain there won’t be any more business transactions.
Consumers must use personal funds to cover any remaining business costs (such as taxes, filing fees for their last tax return, and final legal fees).
- Provide your final tax returns
And must submit your final corporation tax return along with any unfiled sales tax, payroll, or information slip returns. Various examples of this include:
- Close your RC account with CRA after filing your final company tax return for the time period that concluded on your dissolution date.
- Close the relevant accounts with the CRA or relevant provincial organizations after filing any final GST/HST or provincial sales tax reports.
- After submitting T4s for your payroll account, close your RP account with the CRA.
- Closing the RZ account with CRA and submitting any remaining T5s for dividends paid upon company dissolution are both required.
Dissolve Corporation Tax Liabilities
You must make sure that all final tax returns are paid, submitted, and that all tax accounts are closed in any scenario. Here is further information on how to terminate your CRA program accounts.
Finalize Your Tax Returns, Then Close Your Accounts
You must make sure that all unfiled GST/HST returns are submitted through the last day of business operation. Usually, the CRA will refer to this as your “RT” account.
- You can seek to have your GST account canceled once business operations have ended by calling the CRA business line.
- Make sure the payroll account is current before closing it.
- For your payroll account, you must ensure that all final payments to your employees and related repayments have been sent to CRA (RP Account with CRA).
You must file final T4s for your employees after completing your last pay run.
Dissolve Corporation Tax Implications
For its stockholders, closing a firm will have tax repercussions. Whether or whether the firm was profitable during its existence will determine these effects.
- If Business Has Permanent Profits
If the balance sheet’s Retained Earnings column was positive, the business was profitable. The gains are paid out as dividends to the stockholders when the corporation is dissolved.
Determine the precise amount of dividends, as the final Corporate Tax Return is created. The dividends are included on a T5 Statement of Investment Income for submission to CRA. This dividend income will be reported on your yearly individual tax return.
Losses on Investment from Closing a Corporation That Is Allowable
Before dissolving your corporation, you may have an allowed business investment loss on your hands if your corporation has lifetime losses.
Disposition of certain capital assets, such as shares in a small company organization, results in a business investment loss. You might be eligible to claim a business investment loss if you dissolve your firm and suffer a loss. You can write off the permitted business investment loss on your personal tax return.
How to Proffer Final Taxes in Canada for a Dissolve Corporation
Similar to submitting a typical corporate tax return, a dissolve corporation must file a final tax return in Canada. However, there are a few noteworthy adjustments.
The primary distinction is that the tax return’s financial term will finish on the day of dissolution. Unless the dissolution was deliberate, this usually does not coincide with the regular corporate year-end date.
For instance, your company may have a year-end on December 31. If your firm dissolves on January 9, 2023, you will need to file a corporate tax return for December 31, 2022, AND file a tax return for the nine days that ended on January 9, 2023. If it’s reasonable to schedule the dissolution date to coincide with your typical year-end date, it helps save on accounting expenses. The other primary variations concern how your accountant must finish your tax return.
Synopsis
It’s a pain, no doubt, but keep in mind that, according to the law, companies are persons as well, and getting rid of individuals is never simple. Although you might do it yourself, enlisting expert assistance may make the procedure go much more smoothly. Is it just me, or did this piece suddenly go incredibly dark? Think of the Wolf from Pulp Fiction. Anyhow, we pledge to restrain our morbid humor while providing assistance.
Here are some more helpful resources:
