What needs to be done when dissolving your Canadian corporation
If the corporation doesn’t own much, the process may seem simple, but it can still be a lot of work. Accountants sometimes have more calculations and schedules to complete than a normal year-end. There’s also a higher likelihood of follow-up issues with the CRA. Be ready to keep all the data and documents for seven years in case the CRA comes back asking questions.
Why dissolve your company?
There can be many reasons why a business owner may no longer need their corporation. Here are a few:
- Change in lifestyle or retirement
- You no longer need the corporation.
- The business is no longer a going concern, meaning it’s not profitable and never will be.
Whatever the reason, it’s important to understand the dissolution process and follow the proper steps along the way. Before you dissolve your corporation in Calgary or Edmonton, make sure you consult your lawyer and accountant.
Bankruptcy does not equal dissolution
Bankruptcy does not mean your corporation ceases to exist — and bankrupt corporations cannot apply for dissolution. You must fulfill your bankruptcy obligations before you can be discharged from bankruptcy and dissolve your corporation.
It’s important to note that CRA debt owed by your corporation does not go away if you dissolve your corporation. GST, payroll remittances, and corporate income tax — all of these will follow you even if you dissolve your corporation.
Can you accidentally dissolve your corporation?
Each year, you’re responsible for filing a corporate annual return for your company with the provincial registries. This is like registering your car each year — it lets the registries know that your company is still active (and it’s a bit of a cash grab at $85/year). The deadline for filing this is the anniversary of incorporation each year. If you’re 30 months late in filing this corporate annual return, your corporation will automatically be dissolved by the registries.
When this happens, you have two options. You can revive it, or just let it die. (But you’ll still be responsible for the final tax returns for the corporation.)
Don’t close your corporate bank account (yet)
If you’re expecting any cheques or payments to come in, you need your corporate bank account to deposit them. In addition, if you’re expecting a tax refund after you file the final GST or corporate tax returns, you’ll need your corporate bank account to deposit the money. Given all that, you should wait to shut down the account until you’ve received your notice of assessment (up to six months after you file your final tax return).
Before you can dissolve your corporation, you need to make sure the corporation owns no assets and has no liabilities.
The corporation’s assets do not belong to you
Keep in mind that your corporation in Calgary or Edmonton is a completely separate legal entity from you personally. The cash and the assets it owns do not belong to you, even though you own the corporation.
If the company bought a $5,000 treadmill desk, and then dissolves, it doesn’t mean you get that treadmill desk automatically. This asset was paid for with pre-tax dollars, and the government is very aware of the opportunities that exist for corporate assets being used for personal benefit.
This scenario can be applied to vehicles, computers, and cash. So you will need to assign a value to and dispose of, all the assets on the corporation’s balance sheet (or Schedule 8 of the T2 Return). This will normally include equipment, vehicles, computers and furniture.
Steps to prepare your corporation for dissolution
Step 1: Dispose of all assets on the books of the corporation. You can sell them to yourself or someone else. When you sell them, we need to show proceeds of disposition, which will have positive or negative tax implications depending on how the proceeds of disposition compare to the tax base (Undepreciated Capital Cost) and the actual cost of the asset.
Step 2: Pay all outstanding bills, loans, credit cards, taxes, etc.
Step 3: Keep enough cash in the bank to pay legal, accounting and final tax bills.
Step 4: Extract excess cash — repay any shareholder loans, and take what’s left (if any) as a dividend.
Keep in mind that you might personally owe tax if you received assets from the corporation, even if you didn’t get any cash to help pay that tax. This is referred to as a deemed dividend.
Why do you have to sell? The corporation cannot own or owe anything when it dissolves. Those assets and obligations need to be transferred to the shareholders.
Officially dissolving a corporation in Alberta
Once the corporation is prepared for dissolution, here are the steps to follow (who’s responsible for what in parentheses):
- A shareholder resolution must be prepared authorizing the dissolution of the corporation (Lawyer)
- File the Articles of Dissolution with Alberta registries and pay the fee (Owner)
- Close your GST account and payroll account (Owner or accountant)
- File final corporate tax return and GST return (Accountant)
- Pay any final balances owing (if any) (Owner)
- File any final T4 slips for any employees (Accountant)
- File T5 slip for the deemed dividend (Accountant)
Once you have received all Notices of Assessment from the final corporate tax return, payroll and GST accounts, you are probably good to close the company bank account and any other accounts that are in the corporate name.
Reviving your corporation in Alberta
And what if you decide you want to give your business another shot? Assuming you had a direct relationship with a corporation when it was dissolved or were affected financially or legally by the dissolution, you can also revive a corporation.
You must revive your corporation within five years after dissolution. If your business was dissolved more than three years ago, you’ll need to provide an Alberta Name Search Report from the NUANS database to see if any corporations have been created with a similar name.
You can download the forms (Articles of Revival, Notice of Address, Notice of Directors, Annual Return) from the Alberta Registries website. You will also need to pay a fee. Once you have your Certificate of Revival, you’re ready to re-open your CRA Accounts and get the ball rolling.