Nov 17, 2025
The Dilemma: Corporate Status vs. Tax Obligations
The dissolution of a corporation creates confusion regarding its tax filing obligations. The question often boils down to: Does a dissolved corporation need to be legally revived to file outstanding tax returns with the Canada Revenue Agency (CRA)?
For a corporation created under the Canada Business Corporations Act (CBCA), the corporation is required to file an annual return every year within 60 days of the corporation’s anniversary date. Failing to do so two years in a row will cause the corporation to be involuntarily dissolved by Corporations Canada. For a corporation created under the provincial business corporations act, the requirement varies as to whether the corporation needs to file an annual return, or an equivalent form of reporting, to the provincial business bureau.
For example, a corporation was involuntarily dissolved for failing to file its annual returns and had outstanding unfiled tax returns. When the director seeks to file these returns, the director may receive conflicting pieces of advice.
An accountant who files tax returns for corporate clients using EFILE software cannot file for a dissolved corporation because the corporation no longer exists in the system, and thus, the accountant will insist on a corporate revival. However, when the director asks Corporations Canada, Corporations Canada insists that corporate revival is not necessary, and the corporation can simply file with the CRA.
The interaction between corporate law and tax law determines the correct approach to this issue.
The CRA’s Two-Year Window for Assessment
The Income Tax Act (ITA) does not contain a specific provision for assessing a dissolved corporation. The Canada Business Corporations Act (CBCA), on the other hand, extends the “existence” of a dissolved corporation for a limited period for the purposes of administrative action.
The CBCA allows for any “civil, criminal, or administrative action or proceeding” to be brought against a corporation for a period of two years after the date of dissolution, as if the corporation had not been dissolved.
Case law has confirmed that the issuance of a CRA Notice of Assessment is considered an administrative action or proceeding. In effect, the CRA is allowed a 2-year window from the date of dissolution to assess or reassess a dissolved CBCA corporation.
Therefore, during this 2-year administrative window, the corporation is expected to file its outstanding T2 corporate income tax returns. Due to technical limitations, the CRA’s EFILE software cannot accept returns for dissolved corporations. Hence, the returns must be filed by paper method to the relevant tax centre, and the CRA has confirmed through its administrative letters that it will process these filings.
Outside of this 2-year window, if the corporation wishes to file outstanding tax returns, it has to be legally revived.
Personal Liability: Limited and Time-Bound
The directors and shareholders of a dissolved corporation face potential personal liability for outstanding tax liabilities of the corporation, but this liability is limited in scope and time.
Directors are not personally liable for the corporation’s unpaid corporate income tax (Part I tax). Their personal liability is limited to the corporation’s failure to remit amounts withheld at source, such as payroll deductions, GST/HST, and other source deductions such as non-resident withholding tax.
This liability is time-barred: no action can be commenced more than two years after the director last ceased to be a director of the corporation. It is confirmed in case law that a dissolved corporation, voluntarily or not, cannot have a director.
Shareholders may be held personally liable for the corporation’s debts if they received distributions of property or assets of the corporation upon the dissolution. There is no time limit to assess shareholders. However, shareholders are liable only to the extent of any distribution of property or assets they received upon (or prior to) the dissolution. If, for example, the corporation had no assets at the time of dissolution and thus did not distribute anything, the shareholders’ liability is nil.
Pro Tax Tip – Corporate Revival May Not Be Necessary
Whether a dissolved corporation needs to be revived to file outstanding tax returns depends on the exact details of the situation. Within the 2-year administrative window, the dissolved corporation can still file returns with the CRA, but only by paper method. Outside the 2-year window, it must be revived.
Whether the dissolved corporation needs to be concerned with filing outstanding tax returns also depends on the circumstances. If there are valuable tax attributes, such as tax refunds or loss carryovers that the corporation wants to make use of, then it should. The representative of the corporation should consult with an experienced Canadian tax lawyer to determine if there is any advantage to revive.
As for the directors and shareholders of the dissolved corporations, they may be personally liable for tax liabilities of the corporation, but the liability is restricted in scope and time. They should consult with an experienced Canadian tax lawyer to determine any potential liability they might be exposed to.
FAQ
Why might a corporate representative receive conflicting advice from their accountant and from Corporations Canada about filing outstanding tax returns for a dissolved corporation?
The conflict stems from a technical limitation in the tax software versus a legal allowance under corporate law. Accountants using EFILE software cannot file returns for a dissolved corporation because the entity no longer exists in the electronic system, leading them to insist on a corporate revival.
On the other hand, Corporations Canada knows that the Canada Business Corporations Act (CBCA) legally permits administrative actions, like tax assessments, for up to two years post-dissolution. The practical resolution is to file the returns by paper method, a procedure the CRA has confirmed it will process within the two-year window.
For which corporate tax liabilities do directors of a corporation face personal liability?
Directors are not personally liable for the corporation’s general unpaid corporate income tax (Part I tax). Their personal liability is limited to the corporation’s failure to remit amounts that were withheld at source, such as payroll deductions, non-resident withholding tax, GST/HST, and other source deductions such as non-resident withholding tax.
This personal liability for directors is also time-barred, as no action can be commenced more than two years after the director last ceased to be a director of the corporation. Personal liability is also subject to a due diligence defence.
DISCLAIMER: This article just provides broad information. It is only up to date as of the posting date. It has not been updated and may be out of date. It does not give legal advice and should not be relied on. Every tax scenario is unique to its circumstances and will differ from the instances described in the article. If you have specific legal questions, you should seek the advice of a Canadian tax lawyer.
