If you have just incorporated, a fact you may not be aware of is that you can choose when your fiscal year ends. A lot of companies choose a December 31st year end without really thinking about some of the advantages that choosing an alternative fiscal year end can bring.

For tax planning purposes, hands down, choosing a fiscal year end between July 1st and December 31st is the best fiscal year end you could choose. Your tax planning options are broader because of the advantage of income splitting between calendar years for personal tax planning purposes.  For example, declaring a bonus, you can take the expense within your fiscal year end, but not have to pay it out for 180 days.

Another thing you should consider though is the timing of picking an advantageous year end. Picking a November or December year end may not give your accountant enough time to tax plan for you appropriately. I say this because generally if you want to pay yourself a wage by December 31st, then you must remit your source deductions on your payroll by January 15th. Also, you may be affecting when you file your T4’s and T5’s. For this, you have a February 28th deadline each year. Choosing a December fiscal year, this makes the above challenging. Also, your file could get deferred until after tax season as well since personal taxes are due April 30th of each year. Therefore, you have to be mindful of how long it could take your accountant to tax plan for you. In this sense, choosing a year end that is not at the end of the calendar year can be helpful not only to you, but to those that support you.

Speaking of timing, another consideration you may need to think about is if your company’s operations slow down. If you pick a fiscal year end in which your company’s operations are almost at a standstill, then this would significantly reduce compliance paper work since your balance sheet would be pretty bare. This mostly applies to seasonal business. For example, a landscaping company may want to pick a fiscal year end of January since it is in the middle of winter and operations have ceased, and all receivables would have been collected, and all debts would have been paid. For a ski resort, you may want to pick a fiscal year end of July since it is in the middle of summer and for the same reasons above.

Finally, many companies aren’t aware that they can change their fiscal year end date. Say you have a December 31st year end and you want to change, this may be possible. CRA does not outline grounds in which you can request to have your fiscal year end change. However, CRA will only consider a change for “sound business reasons”. For example, you would likely be approved a change if you are trying to reduce your compliance burden by changing the year end to an off-peak fiscal year due to being a seasonal business. The CRA’s stated purpose for requiring approval of changes to fiscal periods is “to prevent taxpayers from rearranging their fiscal periods primarily to minimize taxes”.

“Sound business reasons” normally include the following:
a) A corporation changes its fiscal period to end on the same date as that of its parent or associated company.
b) A business changes its fiscal period to end when its inventory is at a seasonally low level or within a seasonally slack period.
c) A taxpayer has transferred property used in carrying on a business to a corporation under section 85 or to a partnership under subsection 97(2)and changes the fiscal period of the business to end on the day immediately before the day of transfer. This is acceptable where the only purpose for such change is to enable capital cost allowance to be deducted in the last fiscal period ending before the transfer and the transferor and transferee are not both entitled to claim capital cost allowance on a particular property for a common time period.

To request a change, you will need to submit a written request to CRA.

Whichever year end is chosen, it is best to first discuss the possibilities with your accountant. Just because you pick a year end between January and June 30th, doesn’t mean you won’t be able to appropriately tax plan.

 

If you would like more information on the above we would gladly be able to assist you with your needs.