How to Impress Your Banker

Unincorporated Businesses

A non-calendar fiscal year can be adopted for accounting purposes, but individuals and partnerships must report income for income tax purposes on a calendar-year basis. The easiest way to accomplish this is to adopt a December 31 year-end. The implications of choosing a non-calendar fiscal year end should be reviewed with your tax advisor before proceeding.

Incorporated Businesses

Incorporated businesses are not required to report income on a calendar year basis and as a result are free to choose a non-December 31 year end, provided it does not exceed 53 weeks from the date of incorporation. The fiscal period end need not be established at the time the business commences. It may be established when the first tax return for the corporation (T2) is filed for the business.
There are advantages to choosing one fiscal year end date over another for an incorporated business. As bonuses must be paid within 180 days of a year-end, fiscal periods ending after July 5 can offer some flexibility in terms of timing the payment of owner-manager remuneration. Often the business will consider a fiscal period end when the business is at the lowest point in its business cycle to reduce the amount of work involved in counting inventory, accounts receivable, accounts payable etc. There also maybe some economies realized in having a common fiscal period with other related businesses. On the other hand, tax advantages may be realized by having different fiscal periods. All aspects should be considered in selecting the appropriate year-end.