Business -> Ceasing Business
Ceasing Business
If your business is not incorporated and is being closed down, there are things that must be done. The information below does not address all issues of closing down a business, so we advise getting professional help with this.
Employees and Payroll
If you had employees, you must remit all payroll withholding taxes - CPP contributions, EI premiums, and income tax deductions - within 7 days of the day your business ends.
Provide Records of Employment (ROE) to each former employee, generally, within 5 calendar days.
File all required T4 and T4A slips with Canada Revenue Agency (CRA) within 30 days of the date your business ends, and provide copies of these slips to your former employees.
Closing CRA Business Accounts
You may have both payroll and GST/HST accounts with CRA - these must be closed and all amounts remitted - see links at bottom for more information on the CRA website.
Capital Assets
You may have capital assets at the time your business ceases. The disposal of depreciable assets, on which you have been claiming capital cost allowance (CCA), may result in recapture or a terminal loss. If you retain some of the capital assets, you will no longer be able to claim CCA in a subsequent year unless it is used to earn income from a business or property. If it is used for non-income-producing purposes, there is a deemed disposition at that time at its fair market value (FMV). This could also result in recapture or a terminal loss. See the link to further information on the CRA website below.
Outstanding Debt
Did you borrow money for the purpose of operating your business, and there will still be a part of the loan outstanding? Here are the rules, directly from the Income Tax Act:
s. 20.1(2) Borrowed money used to earn income from business — Where at any particular time after 1993 a taxpayer ceases to carry on a business and, as a consequence, borrowed money ceases to be used by the taxpayer for the purpose of earning income from the business, the following rules apply:
- where, at any time (in this paragraph referred to as the “time of disposition”) at or after the particular time, the taxpayer disposes of property that was last used by the taxpayer in the business, an amount of the borrowed money equal to the lesser of
- the fair market value of the property at the time of disposition, and
- the amount of the borrowed money outstanding at the time of disposition that is not deemed by this paragraph to have been used before the time of disposition to acquire any other property
shall be deemed to have been used by the taxpayer immediately before the time of disposition to acquire the property;
- subject to paragraph (a), the borrowed money shall, after the particular time, be deemed not to have been used to acquire property that was used by the taxpayer in the business;
- the portion of the borrowed money outstanding at any time after the particular time that is not deemed by paragraph (a) to have been used before that subsequent time to acquire property shall be deemed to be used by the taxpayer at that subsequent time for the purpose of earning income from the business; and
- the business shall be deemed to have fiscal periods after the particular time that coincide with the taxation years of the taxpayer, except that the first such fiscal period shall be deemed to begin at the end of the business's last fiscal period that began before the particular time.
In other words, yes, the interest is still deductible until the debt is repaid, and the interest expense will still be considered to be interest paid for the purpose of earning income from the business.
Accounts Receivable, Inventories, Eligible Capital Property
The Income Tax Act also has s. 22, Ceasing to carry on business, related to accounts receivable, inventories, and eligible capital property. Talk to your professional accountant for more information on these topics. The tax treatment of eligible capital property changed for 2017 and later years.
TaxTips.ca Resources
T4 Slips - Requirements and Timing
Canada Revenue Agency (CRA) Resources
Payroll: What should you do if your business stops operating?
Changes to your business: Closing accounts
Temporarily stopping business operations
Income Tax Folio S3-F4-C1, General Discussion of Capital Cost Allowance - see paragraph 1.95 re Recapture and terminal loss
Tax Tip: If you are closing your business, get a professional accountant (CPA) involved to ensure things are done properly and no steps are missed!
Revised: October 26, 2023