If you’re running a small business in Canada, one of the things you’ll often be required to do is to make sure your taxes are in order. Hiring a tax accountant to handle all the paperwork and ensure your taxes are properly filed will save you time and money. Furthermore, tax accountants can advise your business on ways to minimize its tax bill depending on your unique situation. One area that you may be concerned about is on how to change the fiscal year end when filing tax returns. We’ll elaborate on this in the paragraphs below:
Can You Change Your Fiscal Year End?
This will depend on your business structure. There are only 3 types of business structures that are allowed a fiscal year end other than 31st of December. These are:
- Sole proprietorships
What If You’re a New Business?
As a sole proprietorship or partnership, you need to make an application to the CRA directly to have the fiscal year end changed. Simply fill the form T1139 by the date required. Once you submit your application, it will be reviewed by the CRA and then your request can be granted or denied.
If you are a corporation, your fiscal year end will be automatically determined by the date you file your first corporate tax return. As soon as you start a corporation, you are required to file your corporate tax return within 53 weeks of your date of incorporation.
Get Permission to Change Fiscal Year End
Both sole proprietorships and partnerships will need to make an application to change the fiscal year end of their business by filling the form T1139. The CRA will then review the application and approve or reject it depending on several factors. Corporations are required to send a letter to the director at their local tax service office requesting for a change. You will need to attach a letter which explains why you need to change your fiscal year end which the CRA will review and decide whether to grant the request.
Changing the Fiscal Year End Without Permission
There are a few circumstances whereby changes to the fiscal year end do not require approval from the CRA. For instance, if the fiscal year period is revised by law, then there’s no need to submit an application requesting changes. Additionally, when a corporation becomes exempt from tax, relocates to a different country or is dissolved, there’s no need to change the fiscal year end. Another common situation is when the business is acquired and the fiscal year has to be changed in order to match with the other company’s fiscal year which makes bookkeeping a lot easier.
The reason why the CRA needs to approve the process of changing fiscal periods is to prevent taxpayers from making these changes in order to minimize taxes. If your business wants to change the fiscal year end in order to lower its tax bill or for any other personal convenience, the CRA is likely to deny that request.
Sohail Afzal, CPA, CMA, MBA
Sohail Afzal, (CPA, CMA, MBA) is the founder & CEO of GTA Accounting Professional Corporation. He is a highly experienced Chartered Professional Accountant and businessman himself and understands the challenges that many businesses face when it comes to cash flow management. As an experienced business consultant & tax advisor, he is helping companies grow by providing the technical, financial, and contractual information necessary for strategic decision-making.