Top Tips for Changing the Fiscal Year-End of a Business in Canada – Part 2
If your fiscal year-end doesn’t meet your company’s needs, are you allowed to change it? It depends on how your business is structured. In order for the CRA (Canada Revenue Agency) to approve this change, certain requirements have to be met.
Here’s what you need to know when you change the fiscal year-end of your business.
Do You Need Permission to Change Your Fiscal Year-End?
All partnerships and sole proprietorships will need to fill out a form and submit it to the CRA if they would like to change their fiscal year-end. Corporations will need to write a letter to the director of their local tax office to request a fiscal year-end change. The CRA will review this letter and will approve your request if they deem your reasons for changing to be practical.
Is Permission Always Required to Change Your Fiscal Year-End?
In most cases, yes. However, there are some situations where the CRA does not need to issue an approval for a fiscal year-end change. Examples of this include:
- A business has been bought by another company, and the fiscal year-end is being changed to match that of the new company.
- A sole proprietor passes away or decides to sell their business, leaving it to be changed “by operation of law”, which means that the year-end will be changed automatically due to laws already in place.
- A company is being dissolved. Companies going bankrupt are excluded from this rule and still need permission for a fiscal year-end change.
- A corporation decides to move its location to another country.
- A company becomes exempt from tax.
What is Needed to Change Your Fiscal Year-End?
The standard fiscal year-end is December 31. Partnerships or sole proprietorships will need to fill out a form T1139 (Reconciliation of Business Income for Tax Purposes). Include the details of why you want to change your fiscal-year end and the CRA will review it and decide if the request should be granted.
Why Aren’t Fiscal Year-End Changes Automatically Approved?
Because some businesses may try to abuse the system by changing their fiscal year-end just for reducing taxes. Because of this, the CRA reviews each request individually to ensure that the change is being made for legitimate business reasons. For example, a seasonal business may want their year-end to line up with their time of operation, or subsidiaries may want their year-ends to match up with their parent companies.
Want to more about how to change the fiscal year-end of a Canadian business? Read more in part 1 of our series on how to change the fiscal year end of a Canadian business:
- Family Successions: What Bill C208 Means for Small Businesses in Canada - February 16, 2022
- Best Practices & Tax Tips for the Self-Employed in Canada - February 16, 2022
- How to Reduce Tax Liability When Planning a Family Succession for Your Business - February 15, 2022