How do I close or dissolve a corporation in Canada?

Wind down the operations first

Before any legal dissolution, the business itself has to be wound down. That means collecting outstanding receivables, paying or settling all liabilities, disposing of assets, and ceasing operations. Any assets left in the corporation when it dissolves are treated as distributed to shareholders, with tax consequences, so you want the balance sheet close to empty before you file.

Disposing of assets can itself trigger tax, through recapture of capital cost allowance or capital gains, so the timing of asset sales relative to year-end is worth planning rather than rushing.

Deal with the tax accounts in order

Each CRA program account has to be closed properly:

• Payroll — issue final T4s, make final remittances, and close the RP account
• GST/HST — file a final return; note that closing can trigger a deemed disposition of remaining assets for GST purposes
• Corporate income tax — file a final T2 for the short year ending on wind-up

Closing GST/HST before you have disposed of assets can create a deemed sale and unexpected tax, which is why order matters. The final T2 also has to reflect any distributions to shareholders.

Distributing what is left to shareholders

Remaining assets or cash paid out to shareholders on wind-up are generally treated as a deemed dividend to the extent they exceed the paid-up capital of the shares. Where the amounts are significant, there are elections and planning steps, such as using the capital dividend account for the tax-free portion of capital gains, that can reduce the tax on the final distribution.

This is the step most likely to create avoidable tax if handled without planning, because the default treatment is not always the most efficient one.

File the articles of dissolution

Once the affairs are settled, you file articles of dissolution with the jurisdiction the company was incorporated in, federal or provincial. The corporation legally ceases to exist only when this is accepted. Until then it remains a live entity with ongoing annual filing obligations, so leaving it half-closed creates future compliance work and penalties.

Some jurisdictions require tax clearance or proof that accounts are settled before they will dissolve the company.

The alternative: keep it dormant

Dissolution is not always the right answer. If you might use the corporation again, or you want to preserve tax attributes such as loss carryforwards, keeping it dormant may be better. A dormant corporation still files an annual T2 and pays the registry's annual fees, but it stays available.

The decision comes down to the ongoing cost of keeping it alive versus the cost and finality of closing it. We help owners weigh that, because reviving a dissolved corporation is far harder than keeping a dormant one.