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← Curriculum /Payroll and source deductions /Level 3

Closing a payroll account

Draft — unverified

An employer who stops having employees does not stop having obligations, and the ones that remain fall due sooner than the ordinary calendar suggests. Closing is a sequence: the final pay run, a final remittance on an accelerated deadline, the information return within a short period of the business ending, the records kept for years afterwards, and only then the account itself closed. Employers routinely do the first and last of those and skip the middle, which is how a business that ceased in March receives correspondence about it in the following year. This tutorial covers the sequence, the deadlines that shorten, the situations that look like closing and are not, and what an agent should establish before agreeing to close anything.

How to work through this tutorial

This puts the ending of a payroll obligation in order: 1. Understand that closing an account is the last step, not the first. 2. Learn what the final pay run must deal with. 3. Learn the final remittance and how its deadline shortens. 4. Learn the final information return and its accelerated deadline. 5. Learn what is not CRA's, particularly the record of employment. 6. Learn the situations that look like closing and are not. 7. Understand what survives the account being closed — records, reviews, liability. 8. Work through an example of an account closed too early. 9. Check your work against the common errors, and verify every specific against CRA's published guidance before relying on it.

The last step, not the first

Employers call to close a payroll account as the way of announcing that they have stopped having employees. It is the natural thing to do and it is the wrong order. The account is the mechanism through which the remaining obligations are met. Remittances are made to it; the information return is filed against it; a balance owing sits on it. Closing it first does not remove any of that, and an employer who believes it has is going to be surprised. So the useful move at the start of such a call is to turn the request into a checklist: has the final pay been run, has everything owed to employees been paid, has the final remittance been made, has the information return been filed, and have the employees been given their slips. The account closes after those, and closing it is close to a formality once they are done. There is a second reason for the order. Several of these obligations have deadlines that run from the date the business ended rather than from the end of the calendar year, so establishing that date early is what makes the rest of the conversation accurate.

The final pay run

The last payroll has to deal with everything, because there is no later one to correct it in. That means final pay, any accrued vacation pay owing, any termination or severance amounts — noting that these are not all treated alike for deductions, and retiring allowances in particular have their own withholding treatment and their own reporting. It also means the benefits sweep that would ordinarily happen at year end has to happen now. Every taxable benefit provided during the part-year has to be identified, valued and included. This is the last chance to withhold on any of it, and an employer who leaves it will be settling the CPP out of its own funds later. And it means checking anything paid outside the ordinary run — a final settlement, a payment to someone who left earlier in the year and was overlooked. The general shape to convey: everything that would have been tidied up over the remaining months of the year has to be tidied up in this pay run.

The final remittance

The deductions from the final pay are remitted on an accelerated basis. Where an employer ceases to operate, the remaining amounts are due within a short period after the end of the business rather than on the employer's ordinary schedule. CRA's guidance states that period precisely and it is short. Take it from the page — an employer told the wrong number here misses a deadline while trying to meet it, which is the worst version of this call. The ordinary consequences apply to a late final remittance: the graduated penalty and interest, exactly as at any other point in the year. Ceasing to operate is not a circumstance that suspends them. This is also the point at which any accumulated shortfall becomes visible and final. An employer whose remittances have been approximate all year has no further pay runs to absorb the difference, so the reconciliation that would ordinarily happen at year end is effectively happening now.

The final information return

The T4 information return for a business that has ceased is not due at the end of February. It is due within 30 days of the day the business ends, and the employees' copies are due on the same accelerated basis. This is the single most-missed obligation in this tutorial. An employer who closed in March is thinking about the following February, if they are thinking about it at all, and the return was due in April. Everything else about the return is as at level 2: the same slips, the same summary, the same reconciliation of reported withholding against remittances received, the same electronic filing threshold, and the same late-filing penalty based on the number of slips. A point that catches employers who are not really closing: the accelerated deadline is tied to the business ending, not to an account being closed. An employer who closes a payroll account because they have no employees this year, while the business continues, has not triggered it — which is one more reason to establish what actually happened before advising on dates. The pensionable and insurable earnings review still applies to a final return. A business that has ceased can and does receive one, which is a genuine surprise to the person who receives it.

What is not CRA's

A closing employer has obligations to other bodies, and confusing them for CRA's is a fast way to give a wrong answer confidently. The **record of employment** goes to Service Canada, not to CRA, and it is what the former employee needs in order to claim EI. It has its own deadline, its own form, and its own filing route. Employers ask about it in the same breath as the T4 because both concern a departing employee, and the correct response is a referral rather than an answer. **Employment standards** — notice, final pay timing, what must be paid on termination — are provincial or territorial, or federal for federally regulated employers, and are nothing to do with the payroll account. Other **program accounts on the same business number** are separate. Closing payroll does not close GST/HST, corporation income tax, or import-export, and a business winding up entirely has to deal with each on its own terms. The business number itself generally persists. An employer who resumes employing later can reopen a payroll program account rather than starting over, which is worth telling anyone who says they might hire again.

What looks like closing and is not

Several situations present as "I want to close my payroll account" and need different handling. **No employees this year, business continuing.** The employer may keep the account and file nil remittances as required, rather than closing and reopening. Which is preferable depends on how long the gap is likely to be, and the important thing is that the employer knows they must tell CRA there is nothing to remit rather than simply going quiet. **Seasonal employers.** These have an established treatment and should not be closing and reopening each year. **A sale of the business.** Whether the payroll account closes depends on what was actually sold. A sale of assets generally means the vendor's employment relationships end and the purchaser is a new employer with its own account and its own obligations. A sale of shares generally means the same corporation continues as the employer, and nothing closes at all. Employers say "I sold the business" for both. **Amalgamation or a change of legal structure** — a sole proprietorship incorporating, two corporations amalgamating — has specific treatment that is not simply closing one account and opening another, and the treatment of the employees' year-to-date figures is the substantive question in it. **Bankruptcy or receivership.** Obligations continue and the trustee's role is specific. Do not treat it as an ordinary closing. In every one of these the agent's job is the same: find out what actually happened to the business before answering about the account.

What survives the closing

Closing the account ends the obligation to remit going forward. It ends very little else. **Records** must be kept. The general requirement is six years from the end of the last tax year to which they relate, and closing the account does not shorten it. An employer who disposes of payroll records on closing has no way to answer a review, and CRA's permission is required to destroy records early. **Reviews and assessments** can still arrive. A pensionable and insurable earnings review on the final return, an assessment for an under-remittance, a query about a slip — all of these reach an employer whose account is closed. **Amendments** are still made if an error is found in the final slips. The route is the same as at level 2. **Liability persists**, and this is where this tutorial meets the trust one. Unremitted source deductions do not disappear because the business ended or the account closed, and director's liability reaches the individuals afterwards. A caller closing an account with an outstanding balance should be left in no doubt about that. The general framing worth giving: closing the account stops the future obligations and settles none of the past ones.

A worked example: closed in March, filed in February

Teaching example. The figures below are invented to show the method. They are not CRA figures, and no amount here should be used for a real taxpayer.

The figures and details in this example are invented for teaching. Nothing here should be quoted as CRA's position. Suppose Aleixo runs a small courier business with three employees and winds it up in March. He runs a final payroll, pays everyone what they are owed, and calls to close the payroll account. It is closed. He does three things wrong, none of them deliberately. **One.** He remits the final deductions on his ordinary monthly schedule, in mid-April, rather than on the accelerated basis that applies when a business ceases. Suppose the amount is $4,900. It is late, and the ordinary penalty and interest apply. **Two.** He files the T4s the following February, as he always has. They were due within 30 days of the business ending — in April. Suppose the late-filing penalty is based on three slips at the minimum band; it is small in this case, and it would not have been with thirty employees. **Three.** He never issued records of employment, because he thought the T4s covered it. One of his employees cannot complete an EI claim, and calls him about it two months after the business has ceased to exist. There is a fourth thing worth noticing, which he did right by accident: he kept the payroll records. In the autumn a pensionable and insurable earnings review arrives on the final return — one employee had a company vehicle swept in at the end — and he is able to answer it. Had he cleared out the files when he closed the business, he could not have. What would have changed the outcome is a single question asked at the start of that first call: when did the business end? Every deadline he missed runs from that date, and none of them run from the end of the calendar year.

Common errors

Closing the account before the final remittance and the final return. The account is how those are done. Not establishing the date the business ended. Every accelerated deadline runs from it. Applying the end-of-February deadline to a business that ceased mid-year. The return is due within 30 days of the business ending. Applying the ordinary remittance schedule to the final remittance. It is accelerated. Skipping the benefits sweep because it is not year end. The final pay run is the last chance to withhold on them. Treating vacation pay, severance and a retiring allowance as identically deducted and reported. They are not. Answering a record of employment question. It is Service Canada's, with its own form, route and deadline. Answering a termination notice or final pay timing question. Employment standards are provincial, territorial or federal, not CRA's. Assuming closing payroll closes the other program accounts on the business number, or the business number itself. Treating "I sold the business" as one situation. An asset sale and a share sale end up in different places. Treating an amalgamation or incorporation as closing one account and opening another. It has its own treatment. Telling an employer with no employees this year that they must close the account. Nil remittances may be the better route. Assuming records can be disposed of once the account is closed. The retention period is unaffected and early destruction needs CRA's permission. Suggesting that an outstanding balance ends with the business. It does not, and it reaches the directors.

What to verify this tutorial against

This was drafted without a source document. The accelerated deadlines are the operative specifics here and they are exactly what an employer will act on, so confirm each one on the page before relying on it — including the 30 days stated in this tutorial. CRA's guidance for an employer who ceases to operate, or stops having employees, is the primary reference: the accelerated final remittance period, the deadline for the final information return, and how to close the account. CRA's employers' guide to payroll deductions and remittances is the reference for the final remittance, nil remittances, seasonal employers, and the treatment on a change of business structure or an amalgamation. CRA's employers' guide to filing the T4 slip and summary carries the accelerated filing deadline for a ceased business alongside the ordinary one, and the late-filing penalty structure. CRA's guidance on retiring allowances, severance and vacation pay sets out the deduction and reporting treatment of each, which differ. CRA's guidance on business records and retention states the retention period and the process for requesting permission to destroy records early. Service Canada's material on the record of employment is the reference for that obligation. It is not CRA's, and this tutorial deliberately gives neither its deadline nor its filing routes. CRA's guidance on the sale of a business and on payroll obligations of a successor employer covers the asset-sale and share-sale distinction and the treatment of year-to-date figures. This line's tutorials on failing to deduct or remit and on amounts held in trust are the references for what survives closing, and the three should be kept consistent. The E-services line's tutorial on business numbers and program accounts is the reference for what closing one program account does and does not do to the others.

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