Choosing or Changing a Corporate Year-End in Canada

When does a new corporation choose its first tax year-end?

A new corporation declares its first tax year-end on its first T2 return and files Schedule 24 with it. The first tax year starts on the incorporation date, and the financial statements or GIFI information filed with that return must cover the same period (CRA: T2 guide, Chapter 1; CRA: determining the tax year).

Decide on a date before closing the books and preparing that return. After the first return establishes a year-end, the corporation generally uses the same year-end in later years unless the CRA approves a change or the law requires one. Opening a corporation income tax account does not itself choose a tax year-end. For the accounts needed after incorporation, see After you incorporate.

How long can the first corporate tax year be?

For most new corporations, the first tax year starts on the incorporation date and can last no more than 53 weeks (371 days), counting that date. Every later fiscal period also has a 53-week maximum (CRA: fiscal period for income tax purposes). A period over 365 days is deemed to end at calendar year-end if it would otherwise leave a calendar year without a tax year-end (Income Tax Act, subsection 249(3)). The next tax year begins the day after the previous one ends (CRA: determining the tax year).

There is an exception: a professional corporation that is a member of a partnership and carries on business in Canada must use a December 31 tax year-end (CRA: determining the tax year). A sole proprietor generally reports business income on a calendar-year basis; the corporate choice described here does not apply to that business structure (CRA: fiscal period for income tax purposes).

Should the corporation choose December 31 or its business cycle?

A workable year-end lets the corporation close accurate books and meet its filing obligations. December 31 may fit calendar-year records; a date after a busy season may leave more time to count inventory, reconcile accounts, and prepare statements. Neither date is automatically better for tax.

The year-end determines which transactions fall into each T2 period and starts the filing and payment clocks. See Filing your corporate return for those deadlines (CRA: when to file).

Are the fiscal year, financial year, and tax year the same?

For a corporation's T2, the tax year is its fiscal period. The CRA also calls the fiscal year-end the business's tax year-end or financial year-end, and requires the financial statements or GIFI attached to the T2 to match that return's tax year (CRA: change of fiscal year-end; CRA: determining the tax year).

Internal monthly or quarterly reports can use shorter periods, but they do not replace the T2 year-end. To see what year-end statements and GIFI figures the corporation needs, see Year-end financial statements for a corporation.

Must the GST/HST fiscal year match the T2 year?

No. A corporation's GST/HST fiscal year generally follows its income tax year, but a corporation with a non-calendar T2 year can elect a calendar year for GST/HST (CRA: GST/HST account registration). The election takes effect on the first day of a calendar year and must be filed by that day. It can create a short GST/HST fiscal year and affect reporting periods, but does not itself shorten the T2 year (Excise Tax Act, section 244; CRA: GST/HST policy P-068).

If the T2 year is non-calendar and GST/HST uses a calendar year by election, the corporation can align GST/HST with its existing T2 year by revoking that election through its CRA account or Form GST70. Revocation can take effect only on the first day of a corporate tax year beginning more than one year after the election took effect, and must be filed by that day (CRA: GST/HST account changes; Excise Tax Act, section 244).

On Form GST70, use Part C, section 1 for the calendar-year election or Part D for revocation. The registrant or an authorized signer signs Part E. If the year was entered incorrectly at registration, call the CRA instead of filing GST70.

For a corporation registered for both GST/HST and QST in Quebec, Revenu Québec uses Form FP-670-V for the fiscal-year election or revocation. Check that account before following the CRA GST70 route.

A T2 year-end change can also change the GST/HST fiscal year. If both years were the same non-calendar year and the T2 year changes to another non-calendar year, notify CRA promptly so it updates the GST/HST account (CRA: GST/HST fiscal year). Check both account records and the GST/HST return periods before asking to align them. For GST/HST return preparation, see Filing GST/HST and input tax credits.

Can the corporation change its year-end after filing a T2?

Yes, but a voluntary change generally needs the CRA's approval. The CRA considers each request on its facts and looks for a significant business reason rather than a tax benefit (CRA: Income Tax Audit Manual, Chapter 12). Filing a T2 with a new date alone does not replace that approval.

The CRA names alignment with a related or associated corporation, the normal operating cycle, and reducing administration by matching another program account as possible business reasons. It says matching a shareholder's personal tax year is not an acceptable reason, and it does not permit retroactive changes or changes to defer tax (CRA: Income Tax Audit Manual, Chapter 12). A GST/HST mismatch may support a request if aligning the accounts meaningfully eases the corporation's reporting work; approval still depends on the facts.

How does the corporation request approval, and when is it unnecessary?

Write to the corporation's tax services office, explain the business reason, give the proposed new year-end and effective date, and ask for approval before using the new date. The CRA says missing reasons or an effective date can delay processing (CRA: change of fiscal year-end).

Gather the incorporation date, the last filed T2 and financial statements, the current and proposed year-ends, GST/HST fiscal and reporting periods, and records showing the operating cycle or administrative burden. Work out the proposed short period and its T2 consequences before sending the letter. A corporation with old losses or multiple related corporations should have those periods reviewed before committing to a date.

CRA approval is unnecessary where the law itself requires or creates a different tax year, including an acquisition of control, a change into or out of Canadian-controlled private corporation status, and certain changes in tax-exempt or residence status. A wound-up corporation can also file a final return for an abbreviated period without approval. Bankruptcy, however, does not remove the approval requirement for a voluntary change (CRA: determining the tax year). If a new owner acquired control, see Adding or removing an owner for the separate deemed year-end and loss rules.

After an acquisition of control or a change into or out of CCPC status, the corporation may choose a new year-end within 53 weeks without asking the CRA. If the event occurs within seven days after its established year-end, the corporation may elect to extend that prior year to just before the event instead of filing another short return. It makes the applicable paragraph 249(4)(b) or 249(3.1)(c) election by attaching a letter to that T2, due six months after the extended year-end; the statute limits eligibility when another control or status change occurred in that interval (Income Tax Act, section 249; CRA: T2 guide, Chapter 1).

Will a change create a short T2 year or affect losses?

Usually, yes: the corporation closes one T2 period on the approved new date, and the next period starts the following day. The corporation files that T2 within six months after the new year-end and pays any income-tax balance generally within two months, or three months if it meets the CCPC conditions (CRA: when to file; CRA: balance-due day). See Filing your corporate return for those conditions and filing steps. A corporation cannot stretch a year beyond 53 weeks simply to reach the new date (CRA: determining the tax year).

A short year can change the calculation as well as the filing schedule. For a Canadian-controlled private corporation, the small business deduction's business limit is prorated when the tax year is shorter than 51 weeks (CRA: T2 guide, Chapter 4). Capital cost allowance generally must be prorated for a year shorter than 365 days, subject to listed exceptions (CRA: T2 guide, Chapter 3). A short T2 year counts as a tax year even if it lasts only months, so it can use one of the tax years in an unused loss's carryforward period (CRA: Income Tax Audit Manual, Chapter 12). See Business losses for loss types and carryforward periods.

Example

Illustrative dates only; no tax is calculated.

A corporation incorporates on March 1 of Year 1 and chooses December 31 of Year 1 as its first T2 year-end. Its first return and statements cover March 1 through December 31 of Year 1.

After filing, it asks the CRA to move its year-end to September 30 because its busiest season ends in August. If approved for Year 2, the next T2 covers January 1 through September 30 of Year 2; the following T2 starts October 1 of Year 2. The corporation checks its deduction limits, filing dates, and whether its GST/HST account needs an update.

Different for you?

• A new owner acquired control: a deemed year-end and restrictions on old losses may apply. See Adding or removing an owner.
• You need the T2 filing or payment date: see Filing your corporate return.
• You need statements or GIFI for the short year: see Year-end financial statements for a corporation.
• You want to change GST/HST return periods: see Filing GST/HST and input tax credits.
• Your corporation had a Quebec establishment during the year: file a separate CO-17 return with Revenu Québec within six months after that tax year ends (Revenu Québec).
• You are forming the corporation and need CRA accounts: see After you incorporate.
• You have filed T2 returns, unused losses, or related corporations and want a new year-end: bring the prior T2 returns, current and proposed dates, GST/HST account details, and business reason for corporate tax help.