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The Canadian Fiscal Year: How Do You Choose Your Year-End Date?

The fiscal year typically refers to a 12-month period through which businesses manage their financial reporting cycle, tax filings, shareholder reports, and external audits. The fiscal year-end marks the end of this 12-month period, bringing the financial year to an end.

 

While for most businesses, the fiscal year is the same as the calendar year, i.e., from January 1st till December 31st, this isn’t always the case. Canadian businesses also have the option to choose a different fiscal year period that starts and ends on different dates than the aforementioned ones. For instance, a fiscal year may begin from May 1st and extend all the way till April 30th. For businesses in their first year, the fiscal year may even be shorter than the 12-month period. At the end of each fiscal year, businesses report on their debt, profits, budgetary deficits, revenues, and other financial statements.

So, do you want to choose your year-end date? Here’s what you need to do.

 

Why Choose a Fiscal Year That Doesn't End in December?

 

Since the calendar year is the most popular fiscal year in Canada (as well as globally), accounting firms are typically the busiest during the weeks/months following December 31st. Having a different fiscal year-end date can help your business receive thorough and undivided accounting services, and often at a lower cost as well.

Moreover, seasonal businesses are advised to choose a fiscal year-end date that doesn’t fall in the busy accounting season. If yours is a seasonal business, having a different year-end date can help you avail more efficient accounting services.

 

Deciding On a Date

 

Corporations are required to select a fiscal year-end date for their business within the 53 weeks that follow their incorporation date. Once the first ever corporate tax has been filed, the year-end date chosen by them will come in play.

For sole proprietorships and partnerships, CRA approval is required if you want the year-end date to be different than December 31st. You’ll have to fill out Form T1139 to make the request. However, CRA approval isn’t guaranteed.

 

accounting paperwork


Changing Your Year-End Date


If you want to change the year-end date of an already established business, you will once again need CRA approval. Sole proprietors and business partners are required to fill out Form T1139, whereas corporations need to send a letter requesting the change to their local tax service office. They’ll also be required to provide an explanation for why they want to change the year-end date.

The final decision lies in the hands of the CRA.


Take Tax Into Account


From a tax planning perspective, there is a deferral opportunity that arises when a company has a year-end that falls after July 6. A corporation can deduct a bonus declared before the end of the fiscal year provided that it is payable within 180 days after year end.

If a corporation has a July 31, 2018 year end, for example, and a bonus is declared payable prior to July 31, 2018, but isn’t paid until early in 2019, the bonus is deductible by the corporation. The bonus is only included in the income of the recipient and taxed personally in the year that the bonus is paid – in this case 2019.

Source deductions have to be remitted shortly after the payment of the bonus (depending on what type of source deduction remitter the corporation is), but the bonus wouldn’t be reported until the 2019 return is filed in 2020. Sometimes business owners will choose a year end that falls later in the year to take advantage of the one-year deferral that allows for the bonus to be pushed into the next year for tax purposes.

Once you’ve established a year end, that’s the one you’ll have going forward. To change it, the corporation must ask the Canada Revenue Agency permission, and it may or may not grant approval for the change. The CRA has indicated that such a request will be granted only if the fiscal year is changing for sound business reasons. A request will not be granted if the fiscal period is being changed primarily to minimize taxes.


Duggal Professional Corporation offers bookkeeping and tax services to help start-ups set up their new business. This includes helping them with their year-end financial reporting.  

Get in touch with us today for more details about our accounting company in Edmonton.