Choosing your year-end date strategically can have both operational and tax advantages for your company but changing your fiscal period can require approval from the CRA and should be a strategic decision.

According to the CRA website, “…unless you have received approval to change the tax year-end, the corporation’s fiscal period is the same from year to year.”

Mark Malecki, CPA, CA and Senior Accountant of Brantford’s Millards Chartered Professional Accountants says that “technically, you can choose your year-end on any fixed date in the year as long as your fiscal year does not last more than 53 weeks.”

Malecki points out that having a year-end in the second half of the calendar year may offer tax advantages in some cases.

“It may allow your corporation to expense a management bonus in one corporate year but actually pay it out in the following calendar year. What this does is allow you to postpone claiming it personally, and avoid paying personal taxes on it until the year after that.”

In an October 16, 2014 Technical Interpretation, CRA noted that they may accept a change to a taxpayer’s fiscal period.

“However, the request to change a fiscal period will only be approved if they determine that the request is prompted solely on sound business reasons other than to obtain a tax benefit.”

Changes for the personal convenience of the taxpayer and to defer taxes would not be permitted.

The Canadian Revenue Agency provides a non-exhaustive list of reasons that could constitute a sound business reason. These include when a corporation changes its fiscal period to end on the same date as its parent or associated company or a corporation changes its fiscal period to end when its inventory is at a seasonally low level.

The CRA will also consider a corporation changing its fiscal period to ease financial reporting.

While changing your fiscal period generally requires approval from the CRA, the Canadian Revenue Agency says “you do not need approval to change the fiscal period in some situations.”

Those conditions include:

  • The corporation has wound-up and you are filing its final return with an abbreviated fiscal period;
  • The corporation has to end its tax year at a certain time because it is emigrating to another country, becoming exempt from tax, or ceasing to be exempt from tax; or
  • A person or a group of persons acquired control of the corporation under subsection 249(4).

Do you have questions about the CRA or changing your fiscal year? Millards has 7 Southern Ontario locations to serve you. Contact us today and learn more.

References & Resources:

Change of fiscal year-end