Cancel Your GST/HST Account: Final Return and Assets You Keep

What do I do with my GST number when I close a sole proprietorship or stop freelancing?

Cancel the account, file the final return, and account for GST/HST on the stock and equipment you keep. Closing the business does not close the account. The CRA treats the day the business closes as the cancellation date (CRA).

In order:

1. Fix the closing date.
2. Cancel in your CRA account or on Form RC145.
3. File the return for the period that ends the day before that date. It carries the tax on property you keep.
4. File a second, short return only if you have tax to remit for the days from the closing date to the end of that month.

A case is not simple when you keep a vehicle, equipment or stock on which you claimed input tax credits (the GST/HST you got back on business purchases), when you are selling the business or moving it into a corporation, when any return is overdue, or when you also hold a provincial sales tax account.

If your business is located in Quebec, you generally file GST/HST returns with Revenu Québec, not the CRA, so the CRA steps and forms here may not be where you start (RC4022). QST is a separate Quebec account. See doing business in Quebec.

Gather before you start:

• Your business number and sign-in to your CRA account.
• The closing date and the last return you filed, with its period.
• A count of stock and supplies held on the closing date, with evidence of what each was worth then.
• A list of equipment and vehicles: purchase date, price before tax, GST/HST paid, credits claimed, later improvements (date, cost, tax) and value on the closing date.
• Bills for services, and rent or similar payments, that cover any time after you close.
• Unpaid customer invoices and unpaid supplier bills on the closing date.

Can I just stop filing GST/HST instead of cancelling?

No. A registrant files a return for every reporting period until the registration ends, and a period with no sales still has a return (Excise Tax Act s. 238). Stopping work, or ignoring CRA mail, does not end that duty. Missed returns and what they cost are covered in missed nil returns and the late filing penalty.

The CRA says that when you cancel, you file all returns and remit the GST/HST you charged or collected while registered (RC4022). A registrant can ask to cancel when closing the business or stopping taxable supplies and no longer needing to be registered.

A small supplier who is still operating cannot cancel at once: the CRA wants one full year of registration first (CRA). If your sales dropped but you still work, see when to register for GST/HST.

How do I cancel GST/HST registration, and which date counts?

Cancel online in your CRA account, or by mail on Form RC145. The cancellation date for a business that closes is the day the business closes (CRA).

Have ready your business number, the business's legal name, the cancellation date and the reason. Online, sign in to your CRA account and choose Business or Representative. By mail, complete Part B and the other parts of Form RC145 that apply, and send it to your tax centre within six months of signing. The same form can close more than one business number account.

The Act lets the CRA cancel a registration that is no longer needed, and it must notify you in writing of the effective date (s. 242). If you will have tax to remit or credits to claim after you close, RC4022 tells you to call the CRA to confirm the date to use.

The cancellation date matters. It sets where each return starts and ends, the day your property is valued, and which bills you can still claim.

What is the final GST/HST return, and when is it due?

The final return covers the reporting period that ends the day before the cancellation date. It is generally due one month after that period ends, and you remit what it shows by the same date (s. 238; s. 228). This is your last return as a registrant, so it also carries the tax on property you keep and any credit adjustments below.

The CRA's own examples follow this pattern (RC4022):

One exception: if an annual filer's cancellation date is the first day of the fiscal year, the final return covers the whole year just ended and is due on the usual annual date (three months after year-end, or June 15 for an individual with a calendar-year business, though any balance is still due April 30). The return for the first month is needed only if tax is owing for it, and is due one month after that month ends (RC4022; s. 238(1); s. 228(2)).

Why might I need two returns?

You need a second, short return only if you owe tax for the days from the cancellation date to the end of that month. Cancellation creates two reporting periods: the part of your usual period before the cancellation date, and those days (s. 251(2)).

The first return is always required. A person who is no longer a registrant files for a period only when net tax is remittable for it (s. 238(2)). After that, the CRA does not require returns for later periods unless you have net tax to report (Memorandum 8-5).

What tax do I pay on inventory and supplies I keep?

Property you held for the business and keep is treated as sold at its fair market value just before you close, and you pay GST/HST on that value (CRA; s. 171(3)). Inventory, supplies and other property that is not capital property fall here.

Fair market value is roughly what the item would sell for, not what you paid. The tax is worked out on that value even for an item you bought without paying GST/HST, so tax can be owing on an item that never gave you a credit (Memorandum 8-5).

Report it on your last return as a registrant and remit any net tax owing (RC4022). Stock you sell before closing is an ordinary taxable sale; see selling used equipment and secondhand goods.

What tax do I pay on equipment, a vehicle or other capital property I keep?

Equipment and other capital personal property you used mostly in the business and keep is treated as sold just before you close, and you account for tax equal to its basic tax content under the change-in-use rules (CRA; Memorandum 8-5). Generally, all or part of the credits you claimed on it are repaid.

Basic tax content is the GST/HST left in the item, not simply the credits you claimed. It starts from the tax on the last purchase and on later improvements, less rebates you could recover (other than input tax credits). It also counts tax that would have been payable but for a relief such as a Form GST44 transfer. That amount is scaled down by the lesser of one and the item's fair market value just before cancellation, divided by its price before GST/HST plus the cost of later improvements. For a plain purchase with the full credit claimed, the result is roughly that credit, scaled to the value on the closing date (CRA; s. 123(1)). Property that came from another business or from another province needs its agreement and election, and its amount is worked out before you file.

The rule applies to items you used mostly in the business, meaning more than 50% (s. 200(2); CRA); land and buildings use different thresholds. You include the tax in your net tax on the last return as a registrant (RC4022). Ask the CRA where this tax goes on your return, and keep your valuation with the books.

For the income-tax side of assets you keep or sell, see selling a business asset.

Can I still claim input tax credits for my last bills, rent or services?

Yes, for amounts that relate to the time before you cancel, even if the bill becomes payable afterwards. No, for services you receive, or rent and royalties, that relate to the time after (RC4022; s. 171(4)).

If you already claimed credits on prepaid rent, royalties or services that cover time after you close, adjust your net tax on the final return to take them back. A final invoice for work done before the closing date can still be claimed on the final return. The ordinary rules for claiming credits are in filing GST/HST and claiming input tax credits. For tax on invoices you issued but were not paid, see GST/HST on deposits and unpaid invoices.

I'm selling the business or incorporating: do I cancel, and what does Form GST44 do?

Generally, a seller who stops carrying on the business closes the GST/HST account, and a joint election can remove GST/HST from the sale if its conditions are met. A seller with a GST/HST account contacts the tax services office to close it (CRA).

Form GST44 is the seller's and buyer's joint election that no GST/HST is payable on the sale of a business or part of one. It needs these conditions (CRA; s. 167):

• The buyer acquires all or substantially all of the property needed to carry on the business as a business. The CRA generally treats at least 90% of its fair market value as meeting this.
• You sell the business or part of it, not just one or more assets.
• If you are a registrant, the buyer is also a registrant.

Tax still applies to taxable services you will perform for the buyer, taxable leases and licences, and taxable sales of real property to a buyer who is not a registrant. A buyer who is a registrant files the election by the due date of its first GST/HST return covering tax that would otherwise arise on the transfer, unless the CRA allows a later date (Memorandum 14-4).

The CRA's page on selling a business does not address moving a business into your own corporation. Section 167 sets its conditions on what is transferred and on registration, so the election may apply when they are met. Property you hold back is not sold under the election, and the deemed-sale tax above applies to it. A valid election does not switch off the buyer's own change-in-use rules: if it later uses acquired capital property for non-commercial activities, tax can apply to the buyer (Memorandum 14-4; s. 167(1.1)). The transfer itself is covered in moving a business into a corporation, and share and asset sales in selling your business.

What about payroll, PST and QST accounts?

Closing the GST/HST account does not close your payroll, PST or QST accounts; each is closed separately.

• Payroll. A final payroll remittance is due within 7 calendar days of the day the business stops operating, and information returns within 30 days of that day (remittances; information returns). A seller with employees must close the payroll account too (CRA).
• PST. Provincial sales tax is run by each province, with its own closing steps. British Columbia, for example, asks for a closure request, online or on its form, and all returns up to the closure date, even nil ones (Government of British Columbia). See provincial sales tax.
• QST. Cancelling QST registration is a Quebec matter. In Quebec, Revenu Québec generally administers the GST/HST, so a business located there deals with Revenu Québec, not the CRA (RC4022). See doing business in Quebec.

How long do I keep GST/HST records after I close?

Keep them for 6 years after the end of the year they relate to, or for another period if one is prescribed. The Act's retention rule has no exception for closing (s. 286(3); CRA).

Keep the asset list and stock count you used for the deemed-sale tax with the final return. The full rules are in how long to keep business records.

I closed years ago and never cancelled, or returns are unfiled: what now?

The account stays open until it is cancelled, so returns stay due for every period since you stopped. The CRA may assess an amount even when no return was filed (s. 299). Cancelling now does not erase those periods: returns up to the cancellation date still need filing (RC4022; s. 238).

The CRA decides the effective date of cancellation and notifies you of it (s. 242), so it may or may not accept the day you actually stopped. Many people in this position ask the CRA to confirm the date before filing, and bring the date the business actually closed and anything that shows it, such as a last invoice or bank deposit. That date decides which periods are still due and the day your remaining property is valued.

Cancelling does not discharge unpaid tax. A sole proprietor owes it personally. A partnership is treated as continuing until its registration is cancelled, and its general partners are jointly liable for its GST/HST, including amounts arising after dissolution if they were members when it dissolved (s. 272.1). Directors can owe a corporation's unremitted net tax, interest and penalties once the Act's collection steps are met, unless they used reasonable care; the CRA has two years after they last cease to be directors to assess them (s. 323). Corporate rules are in closing a corporation.

If the CRA has already assessed an amount, see unfiled returns and estimated assessments.

Example

These examples are illustrative; amounts are in Canadian dollars.

An Edmonton freelancer stops on March 14

A quarterly filer charging 5% GST stops on March 14 and cancels as of that date. She keeps supplies worth C$1,000 and a laptop she bought for C$2,000 plus C$100 of GST, with the full credit claimed. Immediately before cancellation the laptop is worth C$1,000.

• Supplies: 5% of C$1,000 is C$50.
• Laptop: basic tax content is C$100 × (C$1,000 ÷ C$2,000) = C$50.

She adds C$100 to the net tax on her final return, which covers January 1 to March 13 and is due April 13. A second return for March 14 to 31 is due April 30, and only if she has tax to remit for those days.

A Toronto consultant incorporates

A consultant with an HST account moves the business, including C$60,000 of equipment that is all the property needed to carry on the work, into a new company that will use the equipment only in its taxable business.

• With a Form GST44 election, if its conditions are met: no HST is charged on the transfer. The company must hold its own GST/HST account, because the consultant is a registrant, and it files the election.
• Without it: the consultant charges HST at 13% on C$60,000, about C$7,800, and remits it. The company can usually claim that back as an input tax credit if it is a registrant using the equipment in its taxable business, so the election mainly avoids the cash outlay and extra paperwork.

The consultant then cancels the old account. Anything left out of the transfer is taxed under the deemed-sale rules. How the transfer is priced is covered in moving a business into a corporation.

A Winnipeg tradesperson who never cancelled

A quarterly filer stops working in June of year 1 and does nothing. Assume his tools sit unused and are not put to personal use.

• Year 1: the account stays open, and a return is due for each quarter after he stops, nil or not.
• Year 2: no returns are filed. The CRA can send demands or estimate what he owes.
• Year 3: he asks the CRA to cancel as of the day he stopped; whether it accepts that date decides which quarters still need returns. Every return up to the date it sets is filed, and the tax on the stock and tools he held is worked out on their value just before that date, not today. Tax from an earlier switch of the tools to personal use would belong to the period when it happened. Any provincial sales tax account is closed separately.

Different for you?

• You are stopping, selling or incorporating while holding a vehicle, equipment or stock with credits claimed: the tax depends on the price you paid, the credits claimed and the value on the cancellation date, and a passenger vehicle may follow separate rules. A bookkeeper can close the books at that date and prepare the figures the final return needs: bookkeeping help.
• Returns are overdue, an estimate has arrived, or the numbers will not reconcile: see unfiled returns and estimated assessments and catching up on overdue books, and get bookkeeping help.
• You are moving the business into a corporation: whether to use the election and set up a new account is in moving a business into a corporation; bookkeeping help closes the old books and sets up the new ones.
• You are selling the business or its shares: see selling your business.
• Your corporation is closing or going dormant: the GST/HST account is one step in closing a corporation; for a dormant company's year-end return, see a nil return for a dormant corporation.
• You hold land or a building: see GST/HST on commercial property.
• You have a PST or Quebec account: see provincial sales tax and doing business in Quebec.