Business Income

Understanding Fiscal Years

A fiscal year refers to an annual period used by a business for financial statements, accounting and/or income tax reporting. A fiscal year does not necessarily have to be a calendar year, but if you want to use a non-calendar fiscal year for your business, you have to meet the requirements set by the Canada Revenue Agency (CRA).

Defining Fiscal Years

Businesses may select any dates for their fiscal year, but the CRA requires all fiscal years to be less than 53 weeks or 371 days. If you have just started your business and are getting ready to file your first income tax return, your fiscal year can start the day your business commences and end any date after that as long as the period does not exceed the 53-week limit.

Examples of Fiscal Years

Imagine you begin a business on February 1. In this case, you can observe a fiscal year that ends on December 31 and simply file your first return for a partial year. After this, you can use the calendar year for all of your fiscal years in the future.

Alternatively, you may opt to have your fiscal year end no more than 53 weeks after February 1. For example, you could have your year run from February 1 to January 31 of the following year.

In another case, you could have your fiscal year run from February 1 to February 7 of the following year. Although this time period is longer than a calendar year, it is allowed as the CRA gives you up to 53 weeks.

However, it’s important to note that not every business in Canada is allowed to use a non-calendar fiscal year.

Fiscal Years for Sole Proprietors and Partnerships

If your business is a sole proprietorship or a partnership, you can apply to use a non-calendar fiscal year. Fill out Form T1139 and submit it to the CRA. The CRA approves these requests on a business-by-business basis. You can use the same form if you are currently using a non-calendar fiscal year and want to switch to a calendar fiscal year.

Fiscal Years for Corporations

If you have a corporation, you can use any fiscal period as long as it meets the length requirements set by the CRA. However, once you have established your fiscal year, you cannot change it without permission. The CRA offers exceptions to this rule if your corporation goes out of business or you emigrate to another country. In these cases, you are allowed to file a return using an abbreviated fiscal year.

Fiscal Years and Return Due Date

If you use a calendar fiscal year, your tax payment is due on April 30 of the year following the year for which you are filing, but you don’t have to submit your return until June 15.

However, if you use a non-calendar fiscal year, your return is due six months to the date after the last day of your year. For example, if your fiscal year ends June 15, your return is due December 15.