Corporate Wind-Up and Final Distribution Tax Calculator
Closing a corporation that still holds cash. Work out how much comes out tax-free through the capital dividend account and paid-up capital, how much is a taxable deemed dividend, what the dividend refund recovers, and the net cash in your hand.
net cash in hand
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How the Distribution Splits
| Component | Basis | Amount | Taxed |
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The Money
| Item | Basis | Amount |
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The Order to Do This In
| Step | Why the Order Matters |
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Points That Decide This
What to Do Next
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Disclaimer: On a winding-up, subsection 84(2) deems a dividend equal to the amount by which the value of property distributed exceeds the reduction in paid-up capital. An election under subsection 83(2) on Form T2054 can pay part of that dividend as a capital dividend, free of tax, but the election must be made on or before the day the dividend becomes payable. A taxable dividend generates a dividend refund at 38.33% of the dividend, limited to the refundable dividend tax on hand balance, and the calculator solves for that refund since it increases the amount available to distribute. Personal tax uses 2026 federal and Ontario brackets with the surtax and approximate basic personal amounts of $16,500 and $12,950. The calculator assumes all corporate tax on asset sales, recapture and terminal losses has already been paid, and does not model the lifetime capital gains exemption. Under subsection 159(2) a legal representative must obtain a clearance certificate before distributing property, failing which they are personally liable for unpaid amounts to the extent of the value distributed. This page is general information, not tax advice.
Elect Before You Pay, Not After
The capital dividend election under subsection 83(2) has to be made on or before the day the dividend becomes payable. Pay the money out first and the election is late, which means a penalty and, in the worst case, losing the tax-free treatment on the whole amount.
This is the single most expensive mistake in a wind-up and it is entirely avoidable. A $150,000 capital dividend account is $71,600 of tax saved at the top Ontario rate. Getting the order wrong turns a tax-free distribution into a fully taxable one for no reason at all.
Four Buckets, Three of Them Cheaper Than You Expect
| Component | How It Is Taxed |
|---|---|
| Return of paid-up capital | Tax-free |
| Capital dividend from the CDA | Tax-free |
| Taxable deemed dividend | As a dividend, with the gross-up and credit |
| Capital gain on the shares | Half taxable, and usually small |
Most owner-managed corporations have paid-up capital of $100, so almost everything falls into the deemed dividend. That makes the capital dividend account the only meaningful lever, and it is worth checking the balance carefully before anything is paid.
The Dividend Refund Is Real Money
Paying a taxable dividend triggers a refund to the corporation at 38.33% of the dividend, capped at the refundable dividend tax on hand balance. On a $60,000 balance that is $60,000 back into the company, which then also gets distributed.
The refund arrives after the final T2 is assessed, which means the corporation cannot be dissolved until it has been received. Dissolving first strands the money, and recovering it afterwards means reviving the corporation. Plan for the company to stay alive several months longer than feels necessary.
What the Numbers Look Like
| On $800,000 of Cash | Personal Tax | Net | Effective Rate |
|---|---|---|---|
| With a $150,000 CDA and $60,000 RDTOH | $296,659 | $563,341 | 34.50% |
| With no capital dividend account | $369,019 | $490,981 | 42.91% |
| Where the CDA covers the whole amount | Nil | $800,000 | 0.00% |
The gap between the first two rows is $72,360, and it comes entirely from one balance most owners have never looked at.
Check the CDA Balance Properly
The capital dividend account is not on the financial statements. It is a running notional balance built from the non-taxable half of capital gains, capital dividends received, and life insurance proceeds in excess of the policy’s adjusted cost basis.
- The non-taxable half of every capital gain the corporation has ever realised, less the non-deductible half of capital losses.
- Capital dividends received from another corporation.
- Life insurance proceeds above the adjusted cost basis of the policy, which is often the largest single addition.
- The non-taxable portion of eligible capital property dispositions under the old rules.
The CRA will confirm the balance on request, and doing that before the election is worth the wait. An election that exceeds the actual balance attracts a penalty of 60% of the excess.
The Clearance Certificate Is Not Optional
Subsection 159(2) requires a legal representative to obtain a clearance certificate before distributing property. Distribute first and you are personally liable for the corporation’s unpaid taxes, up to the value of what you handed out.
In practice that means the final distribution should wait for the certificate, which takes several months. Directors who pay themselves out and then dissolve are exposed personally if anything is later assessed.
The Full Sequence
- Sell or distribute the assets and pay the corporate tax on any gains, recapture or terminal losses.
- Confirm the CDA balance with the CRA before anything is paid.
- File the T2054 election and pay the capital dividend, in that order.
- Pay a taxable dividend sized to recover the full dividend refund.
- Return the paid-up capital.
- File the final T2 and wait for the dividend refund.
- Apply for the clearance certificate on Form TX19.
- Distribute the remainder and dissolve, in that order, never the reverse.
Consider Whether to Wind Up at All
A dormant corporation costs a few hundred dollars a year to keep filing. If there is any prospect of using it again, or if spreading the distribution across two calendar years would drop you out of the top bracket, keeping it alive one more year can be worth more than closing it now.
Splitting a large distribution across two tax years is the simplest planning available here and it is frequently overlooked because the owner has decided to be finished.
What This Calculator Does Not Cover
- Corporate tax on selling the assets, which happens before this calculation starts
- The lifetime capital gains exemption, which applies to a share sale rather than a wind-up
- Section 88 wind-ups of a subsidiary into a parent corporation
- Winding up with a shareholder loan outstanding, which needs separate handling
- HST on distributing assets in kind rather than cash
- Provinces other than Ontario
Before you sell a business, ask whether a share sale beats a wind-up. The lifetime capital gains exemption can shelter up to $1,275,000 on qualifying shares, which no wind-up can match. Our tax planning service covers the comparison and the sequence.
Frequently Asked Questions
Common questions on closing a corporation.
Related Calculators and Guides
More tools for owners winding down or selling.
Elect First, Distribute Second, Dissolve Last
Send us the final balance sheet and we will confirm the CDA balance with the CRA, file the election, size the taxable dividend to recover the full refund, prepare the final T2 and obtain the clearance certificate.