Winding Up a Corporation: How to Properly Dissolve a Company and Distribute Assets — CPA Firm Near You, Montreal

Introduction

Closing a corporation in Quebec is not as simple as stopping operations. A proper corporate wind-up requires filing final tax returns, clearing liabilities, distributing assets correctly, updating corporate records, and formally dissolving the entity with the appropriate government authorities. If done incorrectly, owners may face unexpected tax bills, double taxation, penalties, or personal liability. This guide explains the tax and legal steps involved in properly winding up a corporation and how a CPA near you in Montreal can ensure a clean, compliant dissolution.

Legal and Regulatory Framework

Under the Quebec Business Corporations Act (QBCA), the Canada Business Corporations Act (CBCA), and the Income Tax Act, a corporation must follow formal procedures to wind up. This includes filing final T2 and CO-17 returns, remitting GST/QST and payroll deductions, clearing corporate debts, updating minute books, filing dissolution documents with the Registraire des entreprises du Québec (REQ) or Corporations Canada, and documenting asset distributions. A corporation legally exists until it is formally dissolved and cannot stop filing tax returns until dissolution is accepted.

Key Court Decisions

Courts have ruled that failing to follow proper dissolution procedures does not eliminate tax obligations. Judges have confirmed that directors can be held personally liable for unpaid GST/QST and payroll deductions during wind-up. Several decisions highlight that asset distributions not documented properly may be treated as taxable dividends or shareholder benefits. Courts emphasize that formal resolutions, liquidation plans, and accurate tax filings are required for a valid wind-up.

Why CRA and Revenu Québec Scrutinize Corporate Wind-Ups

A wind-up is a high-risk period because owners may transfer assets, close accounts, or write off balances improperly. CRA and RQ look for unpaid taxes, missing filings, unresolved shareholder loans, unreported final dividends, incorrect GST/QST treatment, and improper disposition of assets. Corporations with inactive filings or missing remittances often trigger audits.

Steps to Properly Wind Up a Corporation

Step 1: Stop business operations

Cease sales, terminate contracts, close payroll, and stop GST/QST collection.

Step 2: Complete all bookkeeping

Reconcile all accounts, inventory, loans, and fixed assets.

Step 3: File final GST/QST returns

Submit final sales tax filings and close accounts with CRA and Revenu Québec.

Step 4: File final payroll remittances

Submit final deductions, T4/RL-1 slips, and close payroll accounts.

Step 5: File final T2 and CO-17 returns

Prepare tax returns showing disposition of all assets and liabilities.

Step 6: Distribute remaining assets

Distributions can be tax-free if structured as a capital dividend or paid-up capital return, otherwise may trigger taxable dividends.

Step 7: Resolve shareholder loan accounts

Repay loans or declare dividends/bonuses to clear balances before dissolution.

Step 8: Prepare dissolution resolutions

Board and shareholder resolutions must approve the wind-up.

Step 9: Update minute books

Document liquidation steps and asset distributions.

Step 10: File dissolution with REQ or Corporations Canada

Corporation is formally dissolved only after government acceptance.

Common Tax Issues During Wind-Up

Shareholder loans

Outstanding shareholder debts may become taxable income.

Capital gains

Disposition of assets or real estate can trigger gains.

GST/QST

Unclosed accounts can generate penalties even after operations cease.

Payroll

Missing final slips create compliance issues.

Double taxation

Poorly structured distributions may trigger both corporate and personal tax.

Mackisen Strategy

At Mackisen CPA Montreal, we manage the entire wind-up process: completing bookkeeping, reconciling loans, preparing final GST/QST filings, issuing T4/T5 slips, determining tax-efficient asset distributions, filing the final T2 and CO-17, drafting dissolution resolutions, and preparing the REQ or federal dissolution documents. We ensure a clean closure with no lingering tax or legal issues.

Real Client Experience

A Montreal corporation closed operations without filing dissolution. CRA continued assessing taxes for years. We retroactively completed filings, prepared final returns, and dissolved the corporation properly. Another client distributed assets without documentation and faced taxable shareholder benefits; we restructured distributions through capital dividend elections and restored compliance.

Common Questions

Can I stop filing tax returns if my corporation is inactive?

No. You must file until formal dissolution is accepted.

Is a wind-up taxable?

It can be, depending on asset distributions and loan accounts.

Do I need a CPA to dissolve a corporation?

Yes, to avoid penalties and double taxation.

Can I revive a dissolved corporation?

Yes, but penalties and back filings may apply.

Why Mackisen

With more than 35 years of combined CPA experience, Mackisen CPA Montreal handles corporate wind-ups with precision, ensuring compliance, minimizing tax, and preventing personal liability. We make the dissolution process clean, efficient, and stress-free.