Closing a business in Ontario involves more than just shutting the doors. It requires attention to tax obligations to ensure compliance with both federal and provincial regulations. Whether you’re operating as a sole proprietorship, partnership, or corporation, understanding the tax implications is crucial for a smooth transition.
1. Final Tax Returns
Upon closing your business, you must file final tax returns. For corporations, this includes submitting a final corporate income tax return (T2), even if the company had no income during its last fiscal period. Sole proprietors and partnerships should report business income on their personal tax returns (T1) up to the cessation date. Ensure all outstanding tax liabilities are settled to avoid penalties.
2. Closing CRA Program Accounts
You should notify the Canada Revenue Agency (CRA) within 30 days of closing your operations. The CRA requires businesses to close all program accounts associated with their business number (BN). This includes GST/HST, payroll, and import/export accounts. To do this, submit Form RC145, “Request to Close Business Number Program Accounts,” or use the CRA’s online services.
3. GST/HST Obligations
If your business was registered for the Goods and Services Tax (GST) or Harmonized Sales Tax (HST), you must file a final GST/HST return and remit any amounts owing. This includes tax collected on sales and adjustments for business assets held at the time of closure. Properly accounting for these ensures compliance and prevents future issues.
4. Payroll Responsibilities
For businesses with employees, it’s essential to remit all outstanding payroll deductions, including income tax, Canada Pension Plan (CPP) contributions, and Employment Insurance (EI) premiums, within seven days of the business closure. Additionally, issue final T4 or T4A slips to employees and file the corresponding summaries with the CRA within 30 days of the business closure.
5. Employee Termination Obligations
Under Ontario’s Employment Standards Act, employers must provide written notice of termination or pay in lieu thereof, along with any outstanding wages and vacation pay. Issuing Records of Employment (ROEs) and final pay stubs is also required.
6. Tax Clearance Certificate
Although not mandatory, obtaining a Tax Clearance Certificate from the CRA is advisable, especially for corporations. This certificate confirms that all tax liabilities have been settled, providing peace of mind and legal assurance that no further taxes are owed.
7. Dissolving a Corporation
To formally dissolve a corporation in Ontario, you must file an “Application for (Voluntary) Dissolution” with the provincial government. Before doing so, ensure all tax filings are up to date and liabilities are cleared. The CRA will automatically close your corporate and information return accounts upon receiving the final tax return and dissolution notice.
8. Capital Gains and Losses
If your business owned capital assets, such as property or equipment, disposing of these upon closure may result in capital gains or losses. Fifty percent of capital gains are taxable and must be reported. Conversely, capital losses can be used to offset gains, potentially reducing tax liability.
9. Record Keeping
You are required to retain all financial records for a minimum of six years after your closure. This includes tax returns, financial statements, and supporting documents. Proper record keeping is essential in case of future audits or inquiries.
10. Professional Advice
Given the complexities involved in closing a business, consulting with a tax professional or accountant is highly recommended. Insightful Financial Connections can assist you in meeting your tax obligations when closing a business.
