Final T2
Hi there. I am trying to file Final T2 with the final balance sheet that looks like this:
The fact that the SH and RE accounts are not zero is normal on the Final T2, right? The corporation doesn’t have any assets or third-party liabilities, and it was dissolved. Would appreciate your confirmation.
Technically, the final T2 should be all zeros. But, will CRA care? Not sure, since the debit balance in RE would offset the CR balance in SHL, and as long as both balances are amounts owed to/from the same shareholder, it wouldn’t matter. To avoid CRA questioning it, I would set them both to zero (if appropriate).
Thanks @Nezzer ! Really appreciate your response and time.
Wouldn’t that result in the forgiveness of debt rules kicking in? For a company that has had non-deductible expenses, the sch.4 loss won’t be the same as the deficit. So, it’s entirely possible to create taxable income on the final T2.
In this case there would be an ABIL to claim on the personal return.
The corporation was not active and never had assets. So, it would not be qualified as Small Business Corporation (SBC) and hence no ABIL eligibility.
That’s a good point. Would you then leave the $4K Shareholder loan on the Final T2? The corporation did not have any business income, and creating taxable income would not be preferrable.
I doubt it. It’s owed to the shareholder - not likely any supporting documents to prove there was a real debt, or that such a debt was forgiven. I’d worry more about the fact that there was zero share capital - i.e. how can you prove who owned the shares if no consideration was ever received?
Same goes for the ABIL - CRA may want some proof that the shareholder actually INVESTED in the company for the purpose of gaining a return (i.e. dates, amounts, etc). On the other hand, I haven’t had much experience with CRA’s response to ABILs, and I’ve heard others say they’ve claimed ABILs without CRA questioning them…
I wouldn’t. But, I’d be interested to hear the result, if you’re willing to give it a try. I’d expect CRA to reject the dissolution papers and refuse to close the RC account, but who knows? Given that it’s only $4,000 (max corp. tax of under $400) I doubt they would pursue it. Then, like many other such corporations, it would remain eternally inactive and abandonded, but never closed.
This. Avoid ABIL at all costs unless you can absolutely prove its materiality… and I’m talking paperwork on paperwork of loans at prescribed rates… CRA is NOT friendly with this at all…
FYI on final return to dissolution, you would adjust the shareholder amount to offset the RE (this is subjectivity under Section 84 … they need to close each other out, and any surplus would be a deemed dividend).
Seems interesting that the director has been able to get the lawyer to submit the dissolution documentation like that, and it has been accepted?
What Province did that happen in?
An application for dissolution can be filed regardless, it doesn’t have any implications related to the balance sheet. Subjectivity to Section 84 and the deemed year end on dissolution is purely a compliance matter with CRA, not provincial (exclusive of income tax implications).
It was done in BC. Whoever did the dissolution, they had nothing to do with the balance sheet. They did not even see it. The balance sheet will be reported on the T2 for the CRA.
The Common Share balance was $100. But now that the corporation is dissolved, I nullified the Common Share account by adjusting the Shareholder Account. Was this wrong?
Thanks! There won’t be any surplus, though. All the Final T2 accounts will have zero balances then. Is this correct?
Based on the information provided, that is correct.
PUC and RE get closed to the shareholder, B/S should be NIL (not including comparative figures).
So in British Columbia during that process, the Director swore an Affidavit under oath with the Lawyer, to be filed at the Registry, that the corporation did not legally have any liabilities, but in fact the corporation does still have a $4,000.00 liability?
Or am I reading that wrong?
Something (other than “abracadabra”) must be/have been legally done at some point with the $4,000.00
If he swore an affidavit as of the date of dissolution, than he’s right. There are no liabilities as of the date of dissolution (everything gets assumed to the shareholder).
Keep in mind accounting has a retrospective practicality to it. Your closing balance sheet should reflect the above.
This is also out of scope for you as an accountant, I wouldn’t concern yourself with what was sworn or what wasn’t, leave that to the lawyer.
Thanks! Appreciate your response.
There is a debt of $4,000.00 The poster (maulet.sab) said exactly that in the beginning. (owed to an individual)(the same individual who owned shares in the corporation, which apparently has a cost of $0 for some unstated reason that the company’s lawyer might know about)
Furthermore, the requirements of BC law are clear.
It is premature to attempt to file a dissolution final T2 when a copy the actual certificate of dissolution is not actually in hand.
The lawyer will give that to the director, who can then give that to the tax preparer.
However, the speculative information posted here seems to probably not fit into what the mandatory resolutions and the mandatory affidavit likely say as bc law requires.
When the legal situation is known, then any gains on settlement, any non-capital or capital loss-carry-forwards , Section 80(12) 80(13) (income inclusion) and so on may be evaluated. Which specific sections that might be applicable, is not possible to speculate about on the sketchy details available.