Finalizing 2025 wind-up for taxpayer who closed two separate sole proprietorships.
FACTS
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Business A (Service/Retail): Closing inventory cost basis approximately $2800. All gifted to a non-charitable third party. Fair Market Value (taxpayer provided) - $900 due to the items being dated/incomplete.
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Business B (MLM/Cosmetics): Closing inventory cost basis of approximately $7,300. Most destroyed/discarded due to expiration and resale restrictions. Taxpayer kept 75 items (Cost basis ~$1,500) for personal use. FMV (taxpayer provided) for these 75 units is $262.50 ($3.50/unit based on market rates).
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HST Status: Registrant in a 15% province.
APPROACH
1. Income Tax (Form T2125)
Ending Inventory: $0 for both businesses to ensure the full cost of goods is captured in the final period.
Revenue: Add FMV of gifted/kept items to Other Income Line 8230.
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Business A: Add $900.00
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Business B: Add $262.50
2. GST/HST Final Return
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Line 101: Include FMV $1,162.50 ($900 + $262.50) in addition to any regular year-to-date sales.
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Line 103: 15% HST on FMV amount = $174.38 and adding it to the HST collected.
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Logic: Taxpayer is ceasing to be a registrant, they are deemed to have made a taxable supply of the remaining inventory at FMV immediately before closing.
Sources:
Income Tax Act, Section 10(1) & 69(1)
Excise Tax Act, Section 171(3)
Is this how others would handle this?