This year-end article is taken from our quarterly newsletter, Canadian Overview, published by the Canadian member firms of Moore North America. The articles in our newsletter are part of our mission to become the partner of choice for your success by keeping you up to date.
With the new year comes change and new ideas. If you’re thinking of incorporating or starting a business as a sole proprietor, here are some tips for planning an efficient year-end.
Planning for peak periods
If your business is seasonal or cyclical, you’ll ideally want your year-end to coincide with the end of your busiest period. The downtime after the end of the year will give you a chance to catch up on your record-keeping. This will give you a clearer picture of your company’s results. For example, summer is usually the peak season for a landscaping company. In such a case, a September 30 year-end may be possible.
However, the end of a sole proprietorship’s fiscal year always falls at the end of the calendar year. The activity of your sole proprietorship is recorded on your personal tax return on a specific form. As a sole trader, your tax return must be submitted by June 15 instead of the usual April 30. However, if there is a balance due, it must be paid before April 30.
Company types
Self-employed business: The fiscal year-end of a sole proprietorship or self-employed taxpayer must fall on December 31. Similarly, it’s important to remember that a sole proprietorship is still subject to HST collection and remittance if its revenues exceed $30,000 for the year. In addition, a sole proprietorship must file all T slips (i.e. T4, T5) depending on the scope of its activities.
Incorporated business: If your business is incorporated, you can choose any fiscal year-end as long as it falls within 365 days of the date of incorporation. As previously mentioned, when choosing your year-end date, you need to take into account your sector of activity and choose the end of the busiest period. It’s also important to note that the fiscal year-end is fixed for certain industries. Be sure to check whether your company belongs to one of these industries.
Modify a year-end date
If you’ve realized that your fiscal year isn’t right for your current situation, you can change it. To do so, you must first contact the Canada Revenue Agency (CRA). Please note that you cannot change your fiscal year-end date for no reason. In fact, there must be something substantial that will be considered a valid reason by the CRA. For example, if you’ve opened your business and realize that one particular season is very busy, while other times of the year are quieter, it would make sense, from a tax point of view, to change your fiscal year-end.
On the contrary, seeking a tax advantage simply for the sake of convenience (e.g. you’d like to plan a vacation) is likely to be rejected.
Written by Greg Shagalovich, CPA, CA, of Segal LLP. This document was written for our quarterly newsletter, Canadian Overview, published by the Canadian member firms of Moore North America.
