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The Canada Revenue Agency (CRA) defines a common-law partnership for tax and benefit purposes, and...
Closing a corporation is not as simple as stopping operations, closing the bank account, or no longer using the business. A corporation continues to exist until it is formally dissolved, and the Canada Revenue Agency may still expect tax filings and other compliance requirements even if the business is no longer active.
Before closing a corporation, business owners should review the tax, legal, payroll, GST/HST, banking, and recordkeeping steps involved. A clean closure helps avoid future CRA issues, unexpected tax balances, penalties, or problems reopening or starting another business later.
1. Decide Whether You Are Closing Permanently or Temporarily
Before taking steps to close a corporation, the business owner should first decide whether the business is truly ending permanently or whether operations are only being paused temporarily. This decision matters because the tax, legal, and administrative steps can be very different.
If the business is only temporarily inactive, the corporation may still need to continue filing corporate tax returns, GST/HST returns, payroll reports, and other compliance documents, even if there is little or no activity. Temporarily stopping may make sense if the owner expects to restart the business, keep the corporation for future projects, preserve the business name, maintain contracts, or avoid the cost and effort of incorporating again later.
On the other hand, permanent closure may be more appropriate if the owner has no intention of continuing the business, wants to stop ongoing filing obligations, has sold the business assets, retired, moved on to another business structure, or no longer wants to maintain the corporation. In this case, the corporation should be properly wound down, outstanding tax filings and liabilities should be addressed, CRA program accounts should be closed, and the corporation should eventually be dissolved.
When deciding between temporary inactivity and permanent closure, business owners should consider:
| Consideration | Temporary Inactivity | Permanent Closure |
|---|---|---|
| Future plans | Useful if the owner may restart or use the corporation later | Better if there are no plans to continue |
| Filing obligations | Corporate tax and other returns may still be required | Final filings are completed before closing |
| CRA accounts | GST/HST, payroll, and other accounts may need to remain active or be temporarily managed | CRA accounts should be closed after final returns |
| Business name | Corporation can keep the name active | Name may become unavailable after dissolution |
| Costs | Annual filing, accounting, and compliance costs may continue | Wind-up costs may apply, but ongoing costs stop |
| Assets and liabilities | Assets, debts, and shareholder balances remain in the corporation | Assets, debts, and shareholder balances must be settled |
| Contracts and banking | Accounts and contracts may stay open | Contracts, bank accounts, and licences should be cancelled or transferred |
A corporation should not be left inactive without a plan. Even if there is no business activity, missed tax filings, GST/HST returns, payroll obligations, or annual corporate filings can lead to penalties, interest, and future administrative problems. The owner should review the corporation’s current tax status, CRA accounts, assets, debts, and future business plans before deciding whether to pause operations or close permanently.
2. Bring Corporate Tax Filings Up to Date
Before dissolving the corporation, make sure all T2 corporate income tax returns are filed up to the final year-end. A corporation generally continues to have filing obligations until it is legally dissolved.
The final T2 return should report the corporation’s income, expenses, asset dispositions, shareholder balances, dividends, and any remaining tax payable. If the company has losses, retained earnings, shareholder loans, or assets still on the books, these should be reviewed carefully before filing the final return.
For example, the corporation may still need to report:
| Item | Why It Matters |
|---|---|
| Final income and expenses | To report the last period of business activity |
| Asset sales or disposals | May create income, capital gains, recapture, or losses |
| Shareholder loan balances | May need to be repaid, cleared, or reported properly |
| Dividends paid | May require T5 slips and shareholder reporting |
| Remaining tax balances | Must be paid before closing the corporation cleanly |
| Loss carryforwards | May be lost once the corporation is dissolved |
If the corporation is behind on T2 filings, it is usually better to bring those filings up to date before dissolving the company. Otherwise, CRA may continue to issue requests, assessments, penalties, or interest.
3. Review Shareholder Loans and Retained Earnings
Many small corporations have balances between the corporation and the shareholder. Before closing the corporation, the shareholder loan account should be reconciled.
If the shareholder owes money to the corporation, the corporation needs to decide whether the amount will be repaid, offset by salary, offset by dividends, or cleared another way. This should be reviewed carefully because shareholder loan balances can create tax consequences if not handled properly.
If the corporation owes money to the shareholder, the final repayment should be documented before the company is closed. This may happen where the shareholder previously contributed funds, paid business expenses personally, or loaned money to the corporation.
The corporation should also review retained earnings. Retained earnings generally represent profits that were earned by the corporation and left inside the company after corporate tax. If the corporation has cash or assets remaining, distributing those amounts to shareholders may need to be reported as dividends or another type of distribution.
In many cases, T5 slips may be required when dividends are paid to shareholders.
4. Deal With GST/HST Before Closing the Account
If the corporation is registered for GST/HST, the account should not simply be ignored. The corporation should file any outstanding GST/HST returns and then file a final GST/HST return when the account is closed.
Before closing the GST/HST account, the corporation should review:
| GST/HST Item | What to Check |
|---|---|
| Outstanding returns | Confirm all prior GST/HST returns have been filed |
| Net tax owing | Pay any HST balance due |
| Input tax credits | Claim eligible ITCs before the account is closed |
| Asset disposals | Determine whether HST applies to assets sold or transferred |
| Final return period | Confirm the correct closing date and final filing period |
| CRA account closure | Request the GST/HST account closure after final reporting |
There may also be GST/HST implications if the corporation still owns assets at the time the account is closed. Certain property may be treated as if it was sold immediately before closing the GST/HST account, which can create reporting obligations on the final return.
This is especially important if the corporation owns equipment, vehicles, inventory, real estate, leasehold improvements, or other business assets.
5. Close Payroll Properly
If the corporation had employees or a payroll account, payroll should be finalized before closing. The company should make sure all wages, vacation pay, bonuses, source deductions, and employer payroll costs have been handled correctly.
The corporation should review:
| Payroll Item | What to Do |
|---|---|
| Final payroll | Pay final wages, vacation pay, and any amounts owed to employees |
| Source deductions | Remit CPP, EI, and income tax withholdings |
| T4 slips | Prepare and file final T4 slips, if applicable |
| Records of Employment | Issue ROEs when required |
| Payroll account | Close the payroll account after final obligations are complete |
| Payroll liabilities | Confirm no unpaid amounts remain |
If the corporation had no employees but had an active payroll account, the account may still need to be closed to avoid future filing expectations or CRA notices.
6. Pay Outstanding CRA Balances and Other Liabilities
Before dissolving, the corporation should review all outstanding balances. A corporation should generally pay creditors and tax balances before distributing remaining funds to shareholders.
Important liabilities to review include:
| Area | What to Check |
|---|---|
| Corporate tax | T2 balances, instalments, penalties, and interest |
| GST/HST | Final return, ITCs, net tax owing, and asset adjustments |
| Payroll | Source deductions, T4s, ROEs, and final remittances |
| WSIB/EHT, if applicable | Final reporting and account closure |
| Suppliers | Unpaid vendor invoices |
| Loans | Bank loans, credit cards, shareholder loans |
| Lease | Rent, TMI, restoration obligations, and termination terms |
| Legal claims | Any unresolved disputes or obligations |
If money is distributed to shareholders before creditors or CRA are paid, it can create legal and tax issues. It is usually better to settle liabilities first, confirm the corporation’s final position, and then distribute any remaining funds properly.
7. Cancel or Transfer Business Registrations, Licences, and Contracts
Closing the corporation may also involve cancelling or transferring practical business accounts. These items are often overlooked because they are not always part of the tax filing process.
The corporation should review:
| Item | Action |
|---|---|
| Business licences | Cancel municipal or industry licences |
| Insurance | Cancel once business risk has ended |
| Lease | Confirm termination, assignment, or final obligations |
| Subscriptions | Cancel software, phone, and online services |
| Bank account | Keep open until final payments clear, then close |
| Credit cards | Pay off and close business credit cards |
| Merchant accounts | Close POS, Stripe, Square, Moneris, PayPal, or similar accounts |
| CRA program accounts | Close GST/HST, payroll, import/export, and other accounts where applicable |
| Provincial accounts | Close WSIB, EHT, PST, QST, or other applicable accounts |
| Contracts | Cancel or transfer supplier, customer, and service agreements |
The business bank account should usually remain open until all final refunds, payments, tax balances, and distributions are complete. Closing it too early can make the wind-up process more difficult.
8. Sell, Transfer, or Write Off Business Assets
Before dissolving the corporation, the owner should review what assets remain in the business. This may include cash, equipment, vehicles, computers, furniture, inventory, leasehold improvements, websites, intellectual property, or customer lists.
The corporation may need to:
| Asset Situation | Possible Treatment |
|---|---|
| Assets sold to a third party | Record sale proceeds and any gain or loss |
| Assets transferred to shareholder | Record the transfer at fair market value where applicable |
| Assets scrapped or abandoned | Document the write-off |
| Inventory remaining | Value and report the inventory properly |
| Vehicle or equipment remaining | Review CCA, recapture, terminal loss, and HST consequences |
| Cash remaining | Distribute after debts and taxes are handled |
Assets should not simply disappear from the books. They should be sold, transferred, written off, or otherwise accounted for before the corporation is dissolved.
9. Formally Dissolve the Corporation
Stopping business activity does not automatically close the corporation. A corporation continues to legally exist until it is formally dissolved through the appropriate government process.
For Ontario corporations, this generally involves filing dissolution documents with the Ontario government. For federal corporations, the dissolution process is handled through Corporations Canada.
Before dissolving, the corporation should generally make sure that:
| Step | Why It Matters |
|---|---|
| Final tax returns are prepared or planned | To avoid missed filings |
| CRA accounts are addressed | To avoid future CRA notices |
| Assets are dealt with | To avoid unreported distributions or dispositions |
| Debts are paid | To avoid creditor issues |
| Shareholder balances are cleared | To avoid future tax problems |
| Corporate resolutions are prepared | To document approval of the wind-up and dissolution |
After the corporation is dissolved, proof of dissolution should be kept with the corporation’s permanent records. CRA may also request documentation to close or update business accounts.
10. Keep Business Records After Closing
Even after the corporation is closed, business records should be kept in case CRA reviews or audits a past filing. This includes tax returns, bank statements, invoices, receipts, payroll records, GST/HST filings, shareholder loan details, corporate resolutions, and dissolution documents.
A practical approach is to save a complete digital closing package, including:
| Document Type | Examples |
|---|---|
| Tax filings | Final T2, GST/HST return, T4s, T5s |
| CRA confirmations | Account closures, balances paid, correspondence |
| Corporate records | Articles of dissolution, resolutions, minute book |
| Financial records | Trial balance, general ledger, bank statements |
| Asset records | Sale invoices, write-offs, vehicle/equipment details |
| Payroll records | Final paystubs, ROEs, remittance confirmations |
| Banking records | Final bank statements and proof of account closure |
Keeping organized records can help answer CRA questions later and support the way the corporation was wound down.
11. Get Advice Before Distributing Assets or Dissolving
The most important planning step is to review the corporation before it is dissolved. Once the assets are distributed and the corporation is closed, it can be harder to correct mistakes.
Professional advice is especially important if the corporation has:
| Situation | Why It Matters |
|---|---|
| Retained earnings | May require dividend reporting and T5 slips |
| Shareholder loan balances | May create taxable benefits, deemed income, or dividend planning issues |
| Equipment or vehicles | May trigger recapture, capital gains, terminal losses, or HST adjustments |
| Inventory | May need proper valuation and tax treatment |
| Real estate | Can involve capital gains, HST, legal issues, and lender matters |
| Employees | Payroll, ROEs, and final remittances must be completed |
| CRA debt | Should be resolved before dissolution |
| Multiple shareholders | Distributions must be handled properly and fairly |
| Losses | May be lost once the corporation is dissolved |
Final Thoughts
Closing a corporation should be treated as a structured wind-up process, not just the end of business activity. The corporation should file its final tax returns, close GST/HST and payroll accounts, settle debts, clear shareholder balances, distribute any remaining funds properly, and then complete the formal dissolution process.
Before proceeding, it is usually best to speak with an accountant and, where needed, a lawyer. This helps ensure the corporation is closed cleanly, CRA accounts are handled properly, and shareholders avoid unexpected tax issues later.
