The holidays are behind us. For individual taxpayers and many small businesses, the end of the year also means the end of the fiscal year. But a fiscal, or financial, year doesn’t necessarily have to coincide with popping the champagne and ringing in a fresh calendar year.
For some corporations and businesses, it can be advantageous to choose another time to end a fiscal year. Determining a corporate tax year determines all of your accounting deadlines, including financial reports, external audits, and federal tax filings. There is no requirement that it match a calendar year. In fact, a fiscal period is defined as a specified period not longer than 53 weeks (371 days).
A fiscal year is referenced by its end date or end year. For instance, you may see it noted as FY23 to reference a fiscal year ending in 2023. While individual Canadian taxpayers are held to a calendar year for tax reporting purposes, the Government of Canada uses April 1 – March 31. Canada’s major domestic private banks end their fiscal years on October 31.
Newly incorporated companies typically use the date of their incorporation as their tax year start, ending a year later. All subsequent returns will be the day after your tax year-end. This is largely because your first year of business means you’ll face a lot of expenses, so it can be advantageous to delay ending your first tax period for a full year.
However, corporations can set their own fiscal years, so long as they do not exceed 53 weeks. There are a few reasons you may wish to choose a fiscal that doesn’t align with a calendar year or your first full year of business.
If your business is particularly busy around the holiday season, you may want to focus on sales and production at year end, making it an unsuitable time to prepare your taxes. Increased business during this time can make it prohibitive for your fiscal to align with a calendar year.
Likewise, if you’re busiest at another time of the year, like summer, you may want your fiscal year to end shortly after this period. Roofers, food trucks, and landscaping companies, for instance, may choose a fall date to end their fiscal year.
Other seasonal industries like tourism and agriculture may also want to choose a fiscal year that aligns with their revenue and expenses. Non-profits usually choose fiscal periods that accommodate charitable grants.
On the other hand, many small business owners find it convenient to align their corporate year-end dates with their personal tax filings. This can make it easier to coordinate with an accountant.
If you find that your fiscal year isn’t working with the rhythm of your business, it’s possible to request a change. You’ll be required to write a letter to the tax services office specifying your reasons for requesting the change and the date you wish the change to be effective. Understanding the various reasons you may want to choose a specific fiscal date can help you better decide what’s most advantageous for your company.
There are some exceptions. Your fiscal year may change without requiring approval under specific circumstances. These include things like winding up your corporation and reporting on a final shortened tax year, moving your corporation out of Canada, or being acquired.
If hearing ‘Auld Lang Syne’ makes you think about taxes, you aren’t alone. Nearly 28 million Canadians are closing out their individual tax years on December 31. If you own a business, though, you have some flexibility and may want to consider shifting your fiscal year away from the busy holiday season, if you haven’t already.
A skilled tax accountant is a great resource for small business owners who want to explore changing their fiscal year. They can help you identify the advantages and disadvantages of various filing periods and determine what’s in your business’ best interests.
Year-end doesn’t always have to align with ringing in the new year. Flexibility in determining your fiscal year means you can close out your corporate financial year whenever you decide that will be.