Need to change the fiscal year-end of a Canadian business? Before you make the change, it is important to understand how the rules apply to your business structure.
A fiscal year-end, also called a tax year-end or financial year-end, is the end of the period your business uses to report income and expenses. Once a fiscal period is set, it usually stays the same from year to year unless a change is allowed or approved by the Canada Revenue Agency.
How your fiscal year-end is chosen, and whether you can change it, depends on whether your business is a sole proprietorship, partnership, professional corporation, or corporation.
Why Your Business Structure Matters
Your business structure affects how you report income, what type of tax return you file, and how much flexibility you have when choosing or changing your fiscal period. The main business structures include:
Sole Proprietorship
A sole proprietorship is an unincorporated business owned by one individual. The owner is responsible for the business, reports business income on their personal income tax return, and does not have a separate legal status from the business.
For income tax purposes, self-employed individuals and sole proprietors generally use a December 31 year-end. However, an eligible individual may be able to use another method of reporting business income that allows the business to have a fiscal period that does not end on December 31. If your business year-end is not December 31, you generally need to file Form T1139, Reconciliation of Business Income for Tax Purposes, with your personal income tax return.
Partnership
A partnership is a relationship between two or more individuals, corporations, trusts, or partnerships that carry on business together. Each partner usually contributes money, labour, property, or skills and shares in the profits or losses of the business.
For many partnerships, business income is generally reported on a calendar-year basis. CRA says this rule affects partnerships where at least one member is an individual, professional corporation, or another affected partnership. However, if you are in a partnership where all members are individuals, you may be able to elect to use a non-calendar-year fiscal period by filing Form T1139 if eligible. If Form T1139 was filed with the previous year’s income tax return, CRA says it generally has to be filed again for the following year.
Corporation
A corporation is a separate legal entity from its owners. It can own property, enter into contracts, earn income, and file its own corporate income tax return. Shareholders own shares of the corporation, but the corporation itself is the taxpayer.
A corporation’s tax year is its fiscal period, and a fiscal period cannot be longer than 53 weeks, or 371 days. A new corporation can choose any tax year-end as long as its first tax year is not more than 53 weeks from the date it was incorporated or formed by amalgamation. The corporation declares its tax year on its first T2 Corporation Income Tax Return, and the financial statements or GIFI attached to the return should match the tax year on the return.
Professional Corporations That Are Members of Partnerships
A professional corporation that is a member of a partnership and carries on business in Canada generally has to use a December 31 tax year-end. This rule is important for professionals such as accountants, dentists, lawyers, medical doctors, veterinarians, and chiropractors who practise through professional corporations and are members of partnerships.
Can You Change Your Fiscal Year-End?
In many cases, yes — but not always automatically.
For corporations, CRA approval is generally required before changing the tax year-end. Unless the corporation has received approval to change its tax year-end, the corporation’s fiscal period generally stays the same from year to year. To request a change, the corporation must write a letter to its tax services office asking for approval and include the reasons for the change and the effective date. If those details are missing, CRA says processing may be delayed.
For sole proprietors and eligible partnerships, the process is different. If you are a sole proprietor, or you are in a partnership where all members are individuals, you may be able to elect to use a fiscal period that does not end on December 31 by filing Form T1139. CRA notes that this alternative method is available only on a per-business basis for businesses carried on in Canada by individuals or partnerships where all partners are individuals.
You generally cannot use the alternative method if you are in a partnership that is a partner in another partnership, if you are an individual partner in a partnership that includes a professional corporation as a partner, if the business expenditures are primarily the cost or capital cost of tax shelter investments, or if you previously elected to use the alternative method and later cancelled the election.
When Corporate CRA Approval May Not Be Required
CRA says there are some situations where a corporation does not need approval to change its fiscal period. These include when:
- the corporation is dissolved and you are filing its final return with an abbreviated fiscal period;
- the corporation has to end its tax year at a specific time because it is emigrating to another country, becoming exempt from tax, or ceasing to be exempt from tax;
- a person or group of persons acquired control of the corporation under subsection 249(4) of the Income Tax Act; or
- the corporation becomes or ceases to be a Canadian-controlled private corporation.
- A corporation that becomes bankrupt must still get CRA approval to change its fiscal period.
What Should Be Included in a Corporate Request?
If your corporation needs CRA approval to change its fiscal year-end, your request should be made in writing to your tax services office. The letter should clearly explain:
- the corporation’s current fiscal year-end;
- the proposed new fiscal year-end;
- the effective date of the change;
- the business reason for the change; and
- any relevant supporting details.
CRA does not provide an automatic guarantee that a request will be accepted. The change should be supported by a valid business reason, not simply a desire to defer tax or gain a tax advantage.
Why Businesses Change Their Fiscal Year-End
A business may want to change its fiscal year-end for several legitimate reasons, including:
- aligning the year-end with a parent company, group of companies, or investors;
- matching the year-end to a natural business cycle or seasonal slow period;
- simplifying bookkeeping, inventory counts, and financial reporting;
- aligning with lender or stakeholder reporting requirements; or
- improving administrative efficiency.
Before making a change, it is important to consider the tax, accounting, GST/HST, payroll, financing, and cash-flow effects. CRA notes that if you are a GST/HST registrant, the fiscal period-end chosen for income tax purposes may affect GST/HST reporting periods, filing deadlines, and remittance due dates.
Speak with a Professional Before Changing Your Fiscal Year-End
Changing your fiscal year-end can affect tax filing deadlines, instalments, GST/HST reporting, bookkeeping, financial statements, shareholder planning, and cash flow. The correct process depends on your business structure and the reason for the change.
If you are considering a fiscal year-end change, speak with a qualified accountant before filing forms or writing to the CRA. Professional advice can help you avoid missed deadlines, rejected requests, incorrect filings, or unintended tax consequences.
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