Final year of business

T1
1

I have a new client who is 87 years old and used to run a couple of very small businesses. The T2125s from last year showed a small amount of losses for each business and $600 in Assets (UCC). He tells me he no longer operates either business (apparently all his clients have passed away :astonished:). He has no income or expenses from the businesses.

How important is it for me to tick that box “Was this your last year of business?” What happens if I just don’t file the T2125s?

3

How so? What would the penalty be based on if there were no income or expenses to report?

I think if CRA comes asking, it’s quite an easy explanation.

Do you suggest going back and adjusting some other tax returns to check that box when the businesses ceased to operate? This would be the case with rental too.

4

So interesting I had the same question this morning. Over the years I have had quite a few clients who were no longer operating their businesses but did not impart that information to us in the previous year. I was mulling if I should have one more question at intake and ask every sole proprietor if they are still operating or if last year was their last year.

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5

Does that line item even get transmitted to CRA? Out of curiosity, I went back to a file from last year and ticked the box. No change came up in taxcycle to report. How can we find out if this is transmitted to CRA or if its just there to allow for a modified year end of anything other than Dec 31?

6

Although the CRA likely don’t do anything with that field, it does get transmitted with the return as either 1 if it is the final year of business or a 0 if it is not.

Here is a snippet from a T2125 for a client who sold their business in 2022.

< sfd:FiscalPeriodStartDate>2022-01-01</sfd:FiscalPeriodStartDate>
< sfd:FiscalPeriodEndDate>2022-09-03</sfd:FiscalPeriodEndDate>
< sfd:FinalBusinessYearIndicator>1</sfd:FinalBusinessYearIndicator>

7

It’s interesting that the Final Year of Business indicator gets transmitted to CRA as you pointed out, @snoplowguy. I say this because I’ve noticed that TaxCycle will drop an inactive business in the 2nd year of inactivity. The T2125 information, if all carryforward values are $0.00, will be deleted from the history (business name, industry code, etc). So in that 2nd or later year of inactivity, if we want to CLOSE that business, we now have to create a NEW T2125 form, re-enter the business information, and then select the CLOSE option.

I’m surprised that TaxCycle would terminate the business when the CLOSED option hadn’t been selected yet. This wasn’t the case with Profile where the inactive business would carry forward indefinitely until it was physically CLOSED. Perhaps @cameron would like to comment on TaxCycle’s rationale for terminating the inactive business prematurely before the CLOSED field is selected?

8

I have never paid much attention to that box. Perhaps I’ve been wrong. Most of my business owners like to keep it “open” as maybe they will have some work in the future. I am fairly certain with this client that he’s done due to his age and the physical nature of his landscaping business.

I think the issue really only arises in the assets that are left in the business because they should be deemed disposed of when a business closes and potentially gains/recapture reported.