Closing a failed Canadian business

Step 1: sole prop or CCPC?

The first decision is structural: a sole proprietorship simply stops trading and reports a final year on T2125. A CCPC has to be dissolved at the corporate level (final T2, articles of dissolution, share extraction) and director liability follows you across the line.

Step 2: close the CRA accounts in order

1. Payroll (RP) first — the account with the highest personal director-liability risk under s.227.1.
2. GST/HST (RT) — file a final return including self-supply at fair market value on any business assets you keep personally (ETA s.171).
3. Corporate (RC) — final T2 and articles of dissolution. Use Form RC145 to close non-active accounts.

Step 3: provincial deregistrations

• Quebec: QST closure with Revenu Québec is separate from GST.
• WCB / WSIB / CNESST: final payroll reconciliation, then cancellation.
• Business name registration: cancel at the provincial registry.

Step 4: assets and CCA

• Terminal loss — s.20(16): when a CCA class is emptied and UCC remains, the remaining UCC is fully deductible against income.
• Recapture — s.13(1): proceeds above UCC are an income inclusion (not a capital gain).
• GST/HST self-supply: personally-retained assets are treated as sold at FMV; remit the GST/HST.

Step 5: claim your losses

• Non-capital losses: carry back 3 years (Form T1A), forward 20 years.
• ABIL — s.39(1)(c): a loss on shares or debt of a small business corporation is an allowable business investment loss. 50% is deductible against any income, not just capital gains.
• ABIL carry: 10-year non-capital loss, then converts to a net capital loss.

Worked example: $100,000 invested in shares of a failed CCPC → $50,000 ABIL → roughly $15,000–$25,000 of personal tax recovery depending on marginal rate.

Step 6: corporate wind-up (CCPC only)

• Capital Dividend Account (CDA): extract the tax-free portion as a capital dividend before dissolution (Form T2054).
• Deemed dividend — s.84(2): distributions on wind-up above paid-up capital are deemed dividends.
• If you go through bankruptcy via a Licensed Insolvency Trustee, trust amounts (payroll source deductions, GST/HST collected) survive — they are not dischargeable.

Step 7: director liability under s.227.1

Directors are personally liable for unremitted payroll source deductions and net GST/HST collected. This liability survives both corporate dissolution and personal bankruptcy. CRA can assess up to two years after you cease being a director. The due-diligence defence exists in the statute but is narrow in practice.

Worked timeline — sole prop, $60k loss

1. Close client work, send final invoices, collect outstanding A/R.
2. Dispose of business assets at FMV; calculate terminal loss / recapture.
3. File final GST/HST return with self-supply on retained assets.
4. Close RT and any RP accounts via RC145.
5. Cancel provincial registrations.
6. Calculate $60k non-capital loss on T2125.
7. Carry back via Form T1A — recover up to 3 years of past tax.
8. Park remaining loss for future use (20-year window).
9. Keep records for 6 years from filing date (CRA standard).

Worked timeline — CCPC, $200k assets / $150k debts

1. Board resolution to wind up.
2. Sell or transfer assets; trigger recapture/terminal loss.
3. Pay creditors in priority order; trust amounts first.
4. File final GST/HST return.
5. Compute and pay out CDA (capital dividend) tax-free if balance exists.
6. Distribute remaining cash: deemed dividend on amounts above PUC.
7. File final corporate T2 marked as final return.
8. File articles of dissolution with provincial registry.
9. Close RP, RT, RC accounts (RC145).
10. Hold corporate records 2 years post-dissolution (Reg. 5800).

Step 8: starting over

• Non-capital losses follow you forward 20 years on your personal return.
• New venture = new BN and new program accounts. The old entity is legally separate.
• Clear any legacy tax debt: payment plan, taxpayer-relief application (Form RC4288), or consumer proposal where appropriate.

Related calculators and guides

• Canadian Income Tax Calculator
• Canadian Capital Gains Tax Calculator
• CRA Audit Guide
• Business Losses Guide