The new year brings new changes and new ideas; if you’re planning on incorporating or starting a business as a sole proprietor here is some advice to consider for planning an effective year-end.
Plan in Accordance with Your Highs and Lows
If your business is seasonal or cyclical, you’ll ideally want to establish a year-end that coincides with the end of your busiest period. The downtime following year-end will allow you to catchup on record keeping and will give you a clearer idea of how well your business has done. As an example, a landscaping business generally peaks over the summer season and may favour a September 30 year-end.
The year-end of a business that is structured as a sole proprietorship is always calendar year-end. The activity of your sole proprietorship is recorded on your personal tax return on a specific form. As a tax filer with a sole proprietorship, your return is due by June 15th instead of the usual April 30th due date. If there is a balance owing, it must be paid by April 30th.
Type of Business
Independent: A sole proprietorship or a taxpayer that is self-employed must use a December 31 fiscal year-end. It’s important to remember, a sole proprietorship is still subject to collect and remit HST if the revenue exceeds $30,000 in the year. Furthermore, a sole proprietorship needs to file all T-slips (i.e. T4s, T5s) depending on the extent of its operations.
Incorporated: If your business is incorporated, you have the option to choose any year-end if its within 365 days of incorporation. As previously stated, when selecting your year-end, you should consider your industry and choose the end of the busiest time for your fiscal year-end. Another bit of information that is important to note is that some year-ends are fixed for some industries, so be sure to check if yours is among those.
Changing a Fiscal Year
If you’ve come to realize your fiscal year is not the best fit as it currently stands, you do have the option to change it. The process is to first correspond with the Canadian Revenue Agency (CRA). You cannot change your year end for just any reason. It must be something substantial that the CRA will likely acknowledge as a valid reason. For example, if you opened your business and then realized that you’re busy in one season but not another, it would make fiscal sense to change your year end.
Pursuing a tax advantage simply for convenience (IE. You have a vacation that you would like to plan around) is not a reason that will likely be accepted.
This article is from the quarterly Canadian Overview, a newsletter produced by the Canadian member firms of Moore North America. These articles are meant to pursue our mission of being the best partner in your success by keeping you aware of the latest business news.
Contributed by Greg Shagalovich, CPA, CA, from Segal LLP. This piece was produced as a part of the quarterly Canadian Overview, a newsletter produced by the Canadian member firms of Moore North America.