Industry News · Taxes
Closing the Business Does Not Close the Debt
A flooring owner who shut down under back injuries and tariff costs asked the Financial Post whether $38,000 of business credit and $6,000 of GST/HST ended with the business, and the answer was no.
October 14, 2026 · 2 min read
Do you still owe the debt after you close the business?
Yes. If the debt is in your name, closing the business does not touch it. A flooring owner put the question to the Financial Post's FP Answers column after shutting down this spring, 11 years in. He owed about $38,000 on a business line of credit and a credit card, plus roughly $6,000 in GST/HST. Credit counsellor Mary Castillo of the Credit Counselling Society told him the money is his to repay, and bankruptcy is far from his only option.
Back injuries and tariff-driven material costs closed the business, not the debts. For an incorporated owner the answer runs through the personal guarantee and the director's exposure on unremitted tax.
What the column says survives
The reader was a sole proprietor, so there was never a line between him and the business. Castillo's answer is that he is personally responsible "even if the accounts were only used for business expenses."
The line of credit is the pressing one. Most are payable on demand, so the lender can call the full balance once the business closes or payments slip. Her first move is to ask the bank to convert the line into a fixed-term loan with payments he can carry.
The credit card is unsecured debt in his name. With the line, it may fit a Debt Management Program: one monthly payment, with participating creditors typically reducing or stopping interest.
The GST/HST balance does not close with the account
Closing the CRA business account does not erase what is owed. Castillo's advice: file the final return and ask for a realistic payment arrangement before the account goes further into collections.
Her fallback is a consumer proposal, a legal arrangement run by a licensed insolvency trustee to repay part of the debt over at most five years. It stops interest and collection calls. A sole proprietor's GST/HST debt can generally be included. Creditors holding most of the debt must accept it, and it marks the credit file and the public record.
Her last step is a list of every debt: lender, balance, rate, minimum payment, secured or not, in arrears or not. Unneeded equipment gets sold, with the money going first to any loan it secures.
PFG’s View
The column answers a sole proprietor. Incorporated owners ask the same question with two other debts in mind.
The personal guarantee is the one that follows you home. Section 7.3 of the Canada Small Business Financing Program guidelines lets the lender take an unsecured personal guarantee up to the original amount disbursed. Section 7.2 says personal assets cannot be used to secure the loan, so the house is not collateral. The guarantee is still your promise to pay if the business cannot, and it outlives the business.
We read the guarantee before the purchase price on a business acquisition file. A CSBFL purchase paid for assets, not shares, under the asset-sale rule on a CSBFL purchase. Selling those assets pays the loan down first, as Castillo says for equipment, and the guarantee covers what is left.
The corporation's tax debt can become yours. Section 227.1 of the Income Tax Act makes directors jointly and severally liable with the corporation for payroll source deductions it failed to remit, with the interest and penalties. Section 323 of the Excise Tax Act does the same for GST/HST.
CRA goes after the corporation first, through a Federal Court certificate returned unsatisfied or a claim proved in a bankruptcy or dissolution. It cannot assess a director more than two years after that person last ceased to be a director. The defence in both sections is diligence, the care a reasonably prudent person would have taken to prevent the failure.
Payroll remittances and GST/HST are the two balances to clear first when a business is winding down.
Ottawa's tariff program does not help here. FedDev Ontario's FAQ lists refinancing existing debt among the costs the Regional Tariff Response Initiative will not pay for.
If the business is still open and the loan is the problem, refinancing the debt while the statements still show a going concern comes first. Castillo's list works for a corporation too: write every debt down, mark the ones that carry your signature or a director's exposure, and start there.
Sources
- Financial Post, FP Answers - Back injuries and tariffs forced me to shutter my business. Do I still owe that debt?
- CSBFP guidelines (ISED), section 7 - security and guarantees
- CSBFP frequently asked questions - lenders (ISED)
- Income Tax Act, section 227.1 - liability of directors (Justice Laws)
- Excise Tax Act, section 323 - liability of directors (Justice Laws)
- FedDev Ontario - Regional Tariff Response Initiative, frequently asked questions
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