Document Sample
        Every day, businesses are sold, business owners retire
        or die or, sometimes, a business is not the success that
        was anticipated and owners decide to cut their losses
        and wind things up. When a business changes hands or
        closes, whatever the reason, many of the same legal and
        tax requirements apply, and many of the same steps and
        procedures must be followed. Where a business closes
        because of a bankruptcy, either personal or corporate,
        many of the requirements outlined below must be
        fulfilled, but the overall process is a great deal more
        complex and professional advice is mandatory.

             Two factors — and the interaction of those factors — determine the steps that
             need to be taken when a business is closed, or when there are significant changes
             to its organization. The first is the nature of the business itself — whether it has
             been carried on as a sole proprietorship, a partnership or a corporation. The
             second determining factor is the reason for the change. Different rules can come
             into play when a business is being sold, as opposed to those that apply when a
             business owner dies. Each of these situations brings a slightly different set of
             rules into play. These rules are summarized below.


             A sole proprietorship is the easiest type of business to set up and, not
             surprisingly, the easiest to wind down.

             Closing a Business Operating as a Sole Proprietorship
             A sole proprietor who operates a business cannot really “sell” the business in the
             usual sense of that word. Where a business is operated as a sole proprietorship,
             and the sole proprietor ends his or her involvement with the business, that
             business is closed. The assets of the business may be purchased by another
             person, but the business run by that purchaser is, for all tax and legal purposes,
             an entirely new business.

             The departing sole proprietor must close all accounts that the business has with
             the Canada Revenue Agency (CRA). Typically, this would include a Business
             Number (BN), a payroll account (where the business has employees) and a
             Goods and Services Tax/Harmonized Sales Tax (GST/HST) account. To
             cancel a BN, Form RC145, Request to Close Business Number (BN) Accounts should
             be completed and filed with the CRA. That form can also be used to cancel
             payroll accounts and GST/HST accounts held by the business. The CRA office
             to which Form RC145 is sent will differ depending on the geographic location
             of the business. Generally, it is filed with one’s local Tax Services office; however,
             this practice is not uniform across the country and business owners who
             need to file the RC145 should contact the CRA’s Business Window service at
             1-800-959-5525 to confirm the address of the appropriate office. Alternatively,
             the addresses of each of the CRA’s Tax Services offices can be found on the
             Agency’s Web site at
A sole proprietor who has employees must, in addition to cancelling the payroll
account, prepare and file T4 slips for each of the employees, as well as a T4
summary that covers all employees, and send those to the following address
within 30 days:
               Ottawa Technology Centre
               875 Heron Road,
               OTTAWA, Ontario, K1A 1A2

Any business that has employees must, of course, deduct and remit income tax,
Canada Pension Plan and Employment Insurance amounts from the employees’
wages, and remit those amounts to the CRA. Where a sole proprietorship is
closing, all such amounts outstanding must be sent to the CRA within seven days
of the day the business ends.

The sole proprietor must also prepare and file any outstanding GST/HST
returns covering the period up to the time the business closed, and any GST
collected on sales but not yet sent to the CRA also must be remitted.

The books and records kept by the business must be retained after the business
itself closes. The time period for which the books and records must be kept
varies, depending on the situation, as follows:

   •    f the business owner filed his or her tax return on time, a minimum of six
      years after the end of the tax year to which it relates.

   •    f the business owner’s tax return was filed late, six years from the date the
      return was filed.

   •    f the business owner filed an objection or appeal, until either the issue is
      settled and the time for filing any further appeal expires, or the six-year
      period mentioned above has expired, whichever is later.

Death of a Sole Proprietor
Where a person who has run a business as a sole proprietor dies, all of the steps
outlined above must be taken and some additional requirements, mostly in the
nature of final tax returns, come into play as well.

Where a business is operated as a sole proprietorship, any income generated by
the business is taxed in the hands of the owner of that business. Consequently,
the personal tax return of the business owner is also, in effect, the tax return
for the business. As is the case for all taxpayers, income tax returns for the
year of death (and any returns not filed for previous years) will have to be filed
with the CRA by the deceased’s legal representative, usually the executor or
administrator of the estate. The date by which that final return has to be filed
depends upon the date of death, as shown in the chart below.

Date of Death                                  Filing Deadline
January 1 to December 15                       June 15 of the following year
December 16 to December 31                     Six months after the date of death

Where a sole proprietor dies after the end of a taxation year, but before filing a
return for that year, the filing due date is six months after the date of death. For
example, if a sole proprietor of a business died on February 28, 2006, without
having filed his or her 2006 tax return, that return, as well as any taxes owing,
would be due on August 31, 2006 — six months after the date of death.

Any income taxes owed by a sole proprietor on a final return have their own due
date, which is, in some instances, different than the return filing due date. The
tax payment deadlines are as follows:

Period when Death Occurred             Due Date for Balance Owing
January 1 to October 31                April 30 of the following year
November 1 to December 31              Six months after the date of death

Along with the required income tax returns, final GST/HST returns for the
business must be filed. When a sole proprietor dies, his or her final reporting
period as a registrant is considered to end immediately before the day he or she
ceased to be a registrant. Take, for example, the case of a sole proprietor whose
fiscal year is January 1, 2006 to December 31, 2006, and who usually reported
on a quarterly basis. Where that sole proprietor dies on November 12, the final
reporting period would be November 1, 2006 to November 12, 2006, even
though the actual reporting period would usually end on January 31, 2007.

                                        Closing a Business Operating as a

                                         Where all of the members of a partnership decide
                                         to close the business carried on by that partnership,
                                         many of the same steps outlined above for closing a
                                         sole proprietorship must be taken. For example, the
                                         partnership must cancel its business number and GST/
                                         HST registration using Form RC145, Request to Close
                                         Business Number (BN) Accounts. If the business carried on
                                         by the partnership had any employees, all income tax,
               Canada Pension Plan and Employment Insurance amounts deducted from the
               employees’ wages must be remitted to the CRA within seven days of the day the
               business ends. As well, a T4 slip must be prepared for each employee, together
               with a T4 summary covering all employees, and those must be sent to the CRA’s
               Ottawa Technology Centre (see above address) within 30 days of the day the
               business ends. All outstanding GST/HST returns must be filed, and any GST
               collected, but not yet remitted, must be paid to the CRA.

               As with a sole proprietorship, the books and records of the business carried on
               by the partnership must be retained for a period of time. Generally, that period
               of time is six years.

               Departure or Death of a Partner
               Where a partner dies, determining whether the business can continue as before
               depends on a number of factors.

               Where originally there were only two partners, the remaining partner, should he
               or she decide to keep the business running, will either have to run that business
               as a sole proprietorship or bring in a new partner or partners. In the event
               that the remaining partner decides to run the business on his or her own, the
               partnership has ended and a new business has effectively been started. In that
               case, the business number and other CRA accounts of the partnership must be
               closed and new accounts opened for the sole proprietorship.

               If the remaining partner decides to take in a new partner or partners, the fate
               of the existing business accounts will depend on the terms of the partnership
               agreement that governed the first partnership, and whether the business was
               registered using the legal names of each partner or the provincially registered
               partnership operating name. Some partnership agreements will provide for
               the departure (or death) of a partner and the admission of new partners, while
               others may provide that on the departure or death of any of the founding
               partners, the partnership will cease to exist. If the original partnership does
               cease to exist and a new partnership is created to run the business, all the filings
               which were put in place for the original partnership — for example, registering
               for business number and registering for GST/HST purposes — must be
               cancelled and new ones created for the new partnership.

               In the case of a partner’s death, the same income tax returns that are required
               on the death of any taxpayer must be filed, and the filing and tax payment due
               dates are the same as those imposed on sole proprietors. A summary of when
               the required returns must be filed and when any tax amounts owing must be
               paid can be found in the above section on Sole Proprietorship.


                                        Winding Up a Business Carried On by a
                                        Corporations are the only business entities that have
                                        a legal existence entirely separate and apart from that
                                        of the individuals running the business. In effect, a
                                        corporation is a legal “person” in its own right, and that
                                        separate legal existence creates its own set of obligations
                                        when a corporate business is wound up.

               As with any other type of business that is coming to an end, it is necessary to
               cancel any accounts that have been opened with the Canada Revenue Agency;
               specifically, the corporation’s business number, payroll accounts, corporate
               income tax account, and GST/HST account must be closed using Form
               RC145. T4s must be prepared for any employees of the corporation, and,
               along with a T4 summary, the T4s must be filed at the Ottawa Technology
               Centre (address above) of the CRA. Any amounts withheld from employees’
               wages, but not yet remitted to the CRA, must be sent in within seven days of
               the day the business closes. A final GST return and an income tax return for the
               corporation must be prepared and filed.

               The separate legal existence of the corporation means that some additional
               steps are required. In order to permanently end the corporation’s existence, it
is necessary to send an application for dissolution to the government body that
governs the affairs of the particular corporation. That government body may
be either federal or provincial, depending on the type of corporation involved.
Where, as is usually the case, the original incorporation was done by or with the
help of a lawyer, that person will have the information needed to accomplish the

Once articles of dissolution have been received from the particular government
body, a copy of those articles of dissolution should be sent to the CRA. This is
an important step as, if the CRA is unaware of the corporation’s dissolution
corporate tax returns will be required on an ongoing basis.

Departure or Death of a Shareholder or Director
The independent legal existence of the corporation means that, unlike a sole
proprietorship or a partnership, the death of any of the business principals
does not threaten or undermine the continued existence of the corporate
business. While the CRA, as well as the government body that governs the
affairs of the corporation, will have to be notified, particularly of any change
in the composition of the corporate Board of Directors, a change in directors
or shareholders should not affect the continuing operations of the corporate
business in any significant way.

                                     The CRA issues a number of publications that deal,
                                     in whole or in part, with the issues that arise when
                                     a business is to be closed — a partial list of these
                                     publications follows:

                                     Business and Professional Income

                                     General Information for GST/HST Registrants

             Request to Close Business Number Accounts

             Books and Records — Retention and Destruction

             Request for Destruction of Books and Records

             Preparing Returns for Deceased Persons

             In addition to these forms and publications, the Agency’s Web site provides a
             wealth of additional information. In particular, the Web site includes a section
             entitled Changes to your business, which can be found at: