Temporarily stopping business operations – Tax filing obligations

GST/HST

If you temporarily stop your business, you must continue to file GST/HST returns even if your income is zero for the period.

If you permanently stop your business, go to Close a GST/HST account.

Payroll

If your business stops operating temporarily, call CRA at 1-800-959-5525. Otherwise, CRA will expect you to continue to remit payroll deductions and file returns.

When your business stops operating, remit all Canada Pension Plan (CPP) contributions, Employment insurance (EI) premiums, and income tax withheld to your tax centre within seven days of the day your business stops operating.

Complete and file the necessary T4 slips and T4 Summary electronically or send them to the Jonquière Tax Centre within 30 days of the day your business ends. Give copies of the T4 or T4A slips to your former employees.

You have to calculate the pension adjustment (PA) that applies to your former employees who accrued benefits for the year under your registered pension plan (RPP) or deferred profit sharing plan (DPSP).

Prepare and give a Record of Employment (ROE) to each former employee.

Corporate income tax

You must continue to file T2 corporate income tax returns until your corporation is dissolved by the government body/incorporating authority that governs the affairs of your corporation (Innovation, Science and Economic Development Canada or the province/territory).

Import/Export

No action is required if you suspend operations temporarily.

How do you bring your personal assets into your business

You may find yourself in a situation where you would like to transfer personal assets to your business.

The rules differ for each type of business structure.

Sole proprietorship

For income tax purposes, you have to transfer personal property to a sole proprietorship at its fair market value (FMV).

The FMV of the assets is the opening undepreciated capital cost (UCC).

Partnership

For income tax purposes, you can transfer your personal property to a Canadian partnership for an elected amount.

This amount may be different from the FMV, as long as you meet certain conditions. The elected amount then becomes your proceeds for the property transferred, as well as the cost of the property to the partnership. For more information on transfers of property, go to Interpretation Bulletin IT-413, Election by Members of a Partnership Under Subsection 97(2).

If the elected amount is greater than the original purchase price, you must report the difference as a capital gain on your income tax and benefit return.

Corporation

For income tax purposes, you can transfer personal property to a Canadian corporation for an elected amount.

This amount may be different from the FMV, as long as you meet certain conditions. For more information, go to Interpretation Bulletin IT-291, Transfer of Property to a Corporation under Subsection 85(1), or Information Circular IC76-19, Transfer of Property to a Corporation under Section 85.

If the elected amount is greater than the original purchase price, you have to report the difference as a capital gain on your income tax return.

Note

You can claim an input tax credit (ITC) for GST/HST included in your assets. You calculate this ITC based on the basic tax content of the assets you transferred to your business.

How to change your personal income tax return after you file it

If you think that the income tax and benefit return you filed for the tax year is missing important details such as the Home office expenses for employees or you made a mistake, you don’t need to file a new return, these are the steps to follow:

Wait for your notice of assessment

Whether you filed online or mailed your Income tax return, you need to wait to receive your notice of assessment, which will be issued to you by the Canada Revenue Agency (CRA). After you receive your notice of assessment, you may submit an adjustment request to the CRA. 

Requesting changes to your tax return

  • Request changes Online
    The fastest, easiest and most secure way to change a return is to use the ‘’Change my return’’ option found in the CRA’s My Account or to use ReFILE. If you cannot request changes online because your return is still being processed, you can wait a few days until it has been assessed and then use one of the options in How to change a return
  • Send an adjustment request form
    If you prefer, you can complete Form T1-ADJ, T1 Adjustment Request, and mail it to your tax centre, together with all your supporting documents for the change(s) you want to make.

Tax credits

If you don’t need to reduce your federal tax to zero, you may be able to transfer all or part of certain tax credits to your spouse or common-law partner. Please see Schedule 2 Federal amounts transferred from your spouse or common-law partner for more information.

How long will it take for the changes to be made?

  • If you submitted your request online, your change request will take about two weeks to be processed.
  • If you submitted your request by mail, your change request will take longer. Due to COVID-19, the CRA may take 10 to 12 weeks to process paper adjustments.

Keep in mind that some adjustment requests are considered complex and may take longer to process. Complex requests include situations where additional information or review is required. 

For more information on processing times, go to Service Standards in the CRA.

Online or by mail, you can request an adjustment for any of the 10 previous calendar years. For example, a request made in 2021 must relate to 2011 or a later tax year. Adjustment requests for different years should be on different forms but they can be mailed in together or submitted to the CRA at the same time.

After the CRA has reviewed your request

After the CRA has reviewed your request to change your income tax return, you will receive:

  • a notice of reassessment, indicating the changes made to your return, or
  • a letter explaining why the CRA did or did not make the changes you requested. 

Full listing of Canadian Corporate Services available on-line and costs

Please click on the links below for the various filings and services:

File annual return$12
Incorporate $200
Order uncertified copies of corporate documentsFree
Get a certificate of compliance$10
Get a certificate of existence$10
Amend articles $0 / $200Corporation key required
Pre-approve a corporate nameFree
View/change director informationFreeCorporation key required
Change registered office informationFreeCorporation key required
Add/Change additional addressFreeCorporation key required
Subscribe to annual return reminder emailsFree
Subscribe to email noticeFree
File financial statementsFreeCorporation key required
Order a corporate profileFree

Services for not-for-profit corporations

Services for not-for-profit corporations
File by-lawsFreeCorporation key required

Services for business corporations

Services for business corporations
Register a federal corporation in a province or territoryVariable costCorporation key required
Continue a business into the CBCA Express service available $200
Dissolve a corporationFreeCorporation key required
Revoke intent to dissolve$50
File a proxy circularFreeCorporation key required

Types of Business Ownership in Canada

When starting a company, it’s essential to select the business structure that best supports your goals. 

There are three types of legal structures for a business:

  • sole proprietorship
  • partnership (which is a form of proprietorship)
  • corporation

1. Sole proprietorship

sole proprietorship is informal and easily created, which is why it is the most common structure chosen by new businesses.

In this structure, the business and the operator are one and the same in the eyes of legal and tax authorities. Tax law treats a sole proprietorship as an income source for the proprietor and therefore requires that the business’s financial details be listed in a separate section of the personal income tax form.

In a sole proprietorship, the business’s money and responsibilities are the proprietor’s, and vice versa.

This presents some possibilities for tax management on the part of the sole proprietor. If the business generates a loss, that loss can be applied to reduce income gained from other sources. That is why most part-time businesses are sole proprietorships.

However, sole proprietorships have a downside in that the proprietor is personally liable for all functions and debts of the business.

2. Partnership

A partnership is similar, but instead of one proprietor there are two or more.

As with a sole proprietorship, there is no legal structure for a partnership. However, partners usually have some type of contractual agreement that governs, in percentage terms, the sharing of revenues, expenses and tasks.

When preparing their taxes, the partners apply those same percentages to their income and expenses.

3. Corporation

Corporations are more complicated legal structures compared to sole proprietorships or partnerships. Incorporation is a process in which a separate legal entity, owned by its shareholders, is formed. Incorporation creates formal ownership shares, which produces a taxation and legal distance between the company and the shareholders.

This in turn has tax advantages for the owners, who can be paid as employees of the corporation or through dividends.

Incorporation provides some liability protection for the corporation’s debts and offers some measure of protection for a company’s name. Company officers and shareholders may come and go, but the corporation exists until it is wound down.

Incorporation is most often done under a charter in the operator’s home province, but some companies that operate in many provinces or internationally, or that require enhanced credibility, incorporate federally, which is more costly and complicated.

Corporations must keep meticulous records and register the business and report corporate taxes annually

Many entrepreneurs are not interested in the idea of incorporating, at least not in the early stages of building a business or until the business starts earning income.

4 Steps to incorporate a business in Canada

Entrepreneurs who want to incorporate can do so directly online on the Corporations Canada website. Here are the four steps to incorporate:

  1. Choose and register the corporation name (company name or number).
  2. Create articles of incorporation – Basic incorporation suggests pre-determined articles of incorporation that can be modified later if necessary.
  3. Establish the initial address of the head office and board of directors. Choose an address where you can be sure you will receive any documents that are sent there, as legally it will be assumed that they have been received by the organization. You must also decide who will sit on your board of directors.
  4. Pay the fees at the registry office.

Canada Recovery Benefit (CRB)

The Canada Recovery Benefit (CRB) gives income support to employed and self-employed individuals who are directly affected by COVID-19 and are not entitled to Employment Insurance (EI) benefits. The CRB is administered by the Canada Revenue Agency (CRA).

If you are eligible for the CRB, you can receive $1,000 ($900 after taxes withheld) for a 2-week period.

If your situation continues past 2 weeks, you will need to apply again. You may apply up to a total of 19 eligibility periods (38 weeks) between September 27, 2020 and September 25, 2021.

Eligibility criteria

To be eligible for the CRB, you must meet all the following conditions for the 2-week period you’re applying for:

During the period you’re applying for:

  • you were not employed or self-employed for reasons related to COVID-19

or

  • you had a 50% reduction in your average weekly income compared to the previous year due to COVID-19

How to calculate the 50% reduction

The 50% reduction is based on your average weekly employment or net self-employment income from the previous year.

  • For periods in 2020, use either 2019 or the previous 12 months
    • For periods in 2021, use 2019, 2020, or the previous 12 months

You will need to check that you meet this criteria for every period you apply for.

 Example:

2020, 2019, or the last 12 months

$26, 000 (employment and self-employment income in 2019, 2020, or the last 12 months)

÷ 52

= $500 (average weekly income in 2019, 2020, or the last 12 months)

÷   2

= $250 (50% of the average weekly income in 2019, 2020, or the last 12 months)

CRB 2-week period

$100 (employment and self-employment income for the CRB period)

÷   2

= $50 (average weekly income for the CRB period)

Your average weekly income for the CRB period must be less than 50% of your average weekly income in 2019, 2020, or the last 12 months for periods in 2021.

In this example, since $50 (average weekly income for the CRB period) is less than $250 (50% of the average weekly income in 2019, 2020, or the last 12 months), the individual would meet this criterion.

For this calculation, self-employment income is your revenue minus any expenses incurred to earn the self-employment revenue.

Employment and/or self-employment income includes, among other things:

  • tips you may earn while working
    • non-eligible dividends
    • honoraria (such as nominal amounts paid to emergency service volunteers)
    • royalties (such as those paid to artists)

Do not include the following in the calculation:

  • Canada Pension Plan (CPP), Québec Pension Plan (QPP), or other pension income
    • Social assistance or family support payments
    • Student loans and bursaries
    • Old Age Security (OAS) payments
    • Maternity and parental benefits from EI or similar QPIP benefits
    • Any Canada COVID-19 emergency or recovery benefits

You did not apply for or receive any of the following:

  • Canada Recovery Sickness Benefit (CRSB)
    • Canada Recovery Caregiving Benefit (CRCB)
    • short-term disability benefits
    • Employment Insurance (EI) benefits
    • Québec Parental Insurance Plan (QPIP) benefits
  • You were not eligible for EI benefits
  • Find out if you qualify for EI benefits

You may be eligible for EI benefits if you:

  • were employed for at least 120 insurable hours in the past 52 weeks
  • have not quit your job voluntarily
    • are ready, willing and capable of working each day (for EI regular benefits)
    • are temporarily unable to work while you care for someone else or yourself (for EI maternity, parental, sickness, compassionate care, and family caregiver benefits)

If you are eligible for EI benefits, you will receive a minimum taxable benefit at a rate of $500 per week, or $300 per week for extended parental benefits.

If you received the CERB, the 52 week period to accumulate the insured hours will be extended.

You reside in Canada – You live and have a home in Canada, but do not have to be a citizen or a permanent resident.

You were present in Canada:

  • You are at least 15 years old
  • You have a valid Social Insurance Number (SIN)
  • You earned at least $5,000 in 2019, 2020, or in the 12 months before the date you apply from any of the following sources:
    • employment income (total or gross pay)
    • net self-employment income (after deducting expenses)
    • maternity and parental benefits from EI or similar QPIP benefits

What counts towards the $5,000

  • Counts as income:
    • All employment or self-employment income, including:
      • tips
      • non-eligible dividends
      • honoraria (nominal amounts paid to volunteers)
      • royalties (payments to artists)
    • ·        Does not count as income:
      • disability benefits
      • student loans, bursaries or scholarships
      • social assistance or family support payments
      • Canada Pension Plan (CPP), Québec Pension Plan (QPP), or other pension income
      • Old Age Security (OAS) payments
      • amounts from other COVID-19 benefits:
        • Canada Emergency Response Benefit (CERB)
        • Canada Emergency Student Benefit (CESB)
        • Canada Recovery Benefit (CRB)
        • Canada Recovery Caregiving Benefit (CRCB)
        • Canada Recovery Sickness Benefit (CRSB)

You have not quit your job or reduced your hours voluntarily on or after September 27, 2020, unless it was reasonable to do so

Penalty:

If you voluntarily quit your job on or after September 27, 2020, you will not be eligible to receive the CRB.

You were seeking work during the period, either as an employee or in self-employment  Provincial course exception

If you attended a course, program, or training referred to you by a provincial government or provincial body during the 2-week period, you may be eligible for the CRB if you also meet all the other eligibility criteria.You may work while receiving the CRB

You may earn employment or self-employment income while you receive the CRB. But the CRB has an income threshold of $38,000.

You will have to reimburse $0.50 for every dollar of net income you earn above $38,000 on your income tax return for that year (2020 or 2021). You will not have to pay back more than your benefit amount for that year.

You have not turned down reasonable work during the 2-week period you’re applying for  

  • Penalty for refusing work

If you refuse reasonable work, you will automatically lose 5 periods (10 weeks) of the CRB eligibility periods. You must also wait 5 periods (10 weeks) before you can re-apply. If you refuse work again, you will face the penalty again.

  • You were not self-isolating or in quarantine due to international travel
  • Exceptions:

This does not apply to you if you were isolating because:

  • you travelled for medical treatment certified by a medical practitioner
    • you accompanied a person who is not able to travel without help from an attendant to get medical treatment certified by a medical practitioner
    • you are an essential worker who travelled for reasons normally exempt from quarantine when you return to Canada (such health care workers or truck drivers who need to cross the border for work) but were required to this time

If one of these exceptions applies to you and you meet all other eligibility criteria, call the CRA to apply: 1-800-959-8281You need all of the above to be eligible for the CRB.

Do you sell through online platforms such as Etsy, eBay, Amazon or Kijiji? Here’s what you need to know about taxes.

What is a peer-to-peer sale?

A peer-to-peer (P2P) sale is the selling of goods or services from one person or party directly to another. You may be involved in P2P selling if you are connecting with buyers through online platforms.

Income tax implications

As a resident of Canada, you have to report your income from all sources inside and outside of the country, including P2P transactions, on your tax return. If you paid tax on foreign income, you could be eligible for a tax credit.

It is important to maintain proper financial records of all your sales and expenses. This applies to the sales you make to buyers in Canada and other countries. Keep records of all your purchases to claim eligible expenses on your return.

GST/HST implications

You may have a reasonable expectation of profit from your online activities, and your total taxable supply may be valued at more than $30,000 over four calendar quarters. If so, you will need to register for, collect and pay to the Canada Revenue Agency the goods and services tax / harmonized sales tax (GST/HST) for taxable supplies of goods and services that you made inside and outside Canada. You can get more details on GST/HST registration requirements at: Find out if you must register for a GST/HST account.

How to correct your tax affairs

If you did not report your income from P2P selling, you may have to pay tax, penalties and interest on that income. You can avoid or reduce penalties and interest by voluntarily correcting your tax affairs. To correct your tax affairs (including corrections to GST/HST returns) and to report income that you did not report in previous years, you may:

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10% Temporary Wage Subsidy (TWS) Reporting

You will need to keep information to support your 10% Temporary Wage Subsidy for Employers (TWS) calculation. The Canada Revenue Agency (CRA) may ask you to provide the following:

  • total eligible remuneration paid from March 18 to June 19, 2020
  • federal, provincial, or territorial income tax deducted from the remuneration paid
  • Canada Pension Plan contributions (CPP), Employment Insurance premiums (EI) deducted from the remuneration paid
  • total number of eligible employees employed from March 18 to June 19, 2020

Form required for reporting: PD27

Click the link for the: Form PD27 Use this form to reconcile the TWS on your payroll program (RP) accounts.

You need to complete and submit Form PD27 to the CRA if you are eligible to take advantage of the TWS and:

  • you already reduced your remittances
  • you intend to reduce your remittances (the form will help you calculate your eligible TWS amount)
  • you claimed the Canada Emergency Wage Subsidy (CEWS) and, as a result, need to confirm on Form PD27 the amount of the TWS you are taking advantage of (refer to Line F of your CEWS application).

Submit the completed form to the CRA as soon as possible to avoid receiving a discrepancy notice at the end of the year. You do not need to wait until you file your T4 information return. It can be submitted by the following methods:

  • online via My Business Account – scan and submit using “Submit documents”;
  • mail: Winnipeg NVCC, 66 Stapon Road, Winnipeg MB, R3C 3M2; or
  • fax: 204-984-4138.

If you were not eligible for the subsidy

The CRA will use information from your Form PD27 to reconcile the subsidy on your payroll program (RP) account(s). If you reduced your payroll remittances, but it is later determined you were not eligible for the TWS, the CRA will assess you for the income tax you deducted from your employees’ pay, but did not remit. This assessment may include penalties and interest.

Reporting the subsidy as taxable income

If you take advantage of the TWS, you must report the total subsidy amount as income on your tax return in the same year you reduced your remittances.

CEBA Loan Requirements, Amounts, and Deadlines Have Changed

December 7, 2020 Update

  • Eligible Canadian businesses that currently operate through a personal or business bank account will be able to apply for CEBA.
  • All applicants have until December 31, 2020, to apply for the $40,000 initial loan and until March 31, 2021 for the $20,000 expansion loan at your financial institution.

Eligibility Requirements for the initial $40,000 loan

The CEBA application process follows one of two streams: (i) the Payroll Stream (Applicants with employment income paid in the 2019 calendar year between Cdn.$20,000 and Cdn.$1,500,000) or (ii) the Non-Deferrable Expense Stream (Applicants with Cdn.$20,000 or less in total employment income paid in the 2019 calendar year).

Every applicant must meet the following criteria:

  • Has an active CRA Business Number (BN) with an effective date of registration on or prior to March 1, 2020.
  • Has an active business chequing/operating account with the Lender at the time of applying for CEBA. Note: If Borrower currently does not have a business chequing/operating account the Borrower must create one at their primary financial institution before applying for CEBA.
  • Has not previously used the Canada Emergency Business Account Program (the “Program”) and will not apply for support under the Program at any other financial institution.
  • Intends to continue to operate its business or to resume operations.

If you fall into the Payroll Stream and once you have completed the application with your financial institution, the Government of Canada will assess the application and inform your financial institution of the approval or decline of the loan. If approved, your financial institution will provide the funds into your business chequing / operating account.

If you fall into the Non-Deferrable Expenses Stream you must also meet the following criteria:

  • Have eligible non-deferrable expenses between Cdn. $40,000 and Cdn. $1,500,000. Eligible non-deferrable expenses could include costs such as rent, property taxes, utilities, and insurance. Expenses will be subject to verification and audit by the Government of Canada.
  • Filed an income tax return with the CRA with a tax year ending in 2019 or, if its tax return for 2019 has not yet been submitted, 2018.

CEBA applications under the 2020 Eligible Non-Deferrable Expenses Stream will follow a three-step process:

Step 1: Complete the online Pre-Screen Tool. The Pre-Screen Tool is not a CEBA application and is solely intended to provide a non-binding indication of eligibility to inform your decision of whether to open a business account (if needed) and apply for CEBA at your financial institution. If you are declined at this step you can still apply for CEBA and therefore still need to complete the next two steps as identified.

Step 2: Businesses will initiate applications directly at their primary financial institution where they hold their primary business chequing /operating account. The financial institution will then direct applicants to Step 3 of the application process.

Step 3: Following the initial application through your financial institution, applicants will be directed to a CEBA website to provide supporting documentation of the 2020 Eligible Non-Deferrable Expenses and to complete the application.

The Government of Canada will assess application information submitted via financial institutions together with the supporting documentation and information provided in Step 3. If successful, the Government of Canada will notify your financial institution and provide funding for your CEBA loan.

Requirements for the additional $20,000 expanded loan

As of December 4, 2020, CEBA loans for eligible businesses will increase from $40,000 to $60,000.

Applicants who have received the $40,000 CEBA loan may apply for the $20,000 expansion, which provides eligible businesses with an additional $20,000 in financing directly at their bank.

All applicants have until March 31, 2021, to apply for $60,000 CEBA loan or the $20,000 expansion.

The main requirement to recieve the additional $20,000 loan is an attestation statement. This means that you would need to attest to:

  • facing ongoing financial hardship;
  • having made reasonable attempts to adapt the business to COVID-19 (and reduce expenses);
  • intention to continue the business; and
  • using the additional $20,000 for specific purposes (non-deferrable eligible expenses for 2020 or 2021).

The deadline to apply for the $20,000 expansion at your financial institution is March 31, 2021.