Selecting a fiscal year-end is a crucial decision for any corporation, regardless of its size or industry.
Companies incorporated in Canada under the Canada Business Corporations Act and companies incorporated under provincial laws, such as the Business Corporations Act (Ontario), have the flexibility to determine their fiscal year-end based on their specific needs and objectives. This article will explore the significance of choosing a fiscal year-end, discuss the factors to consider when making this decision, and provide guidance on selecting an appropriate fiscal year-end for a corporation based in Canada.
What is a fiscal year-end?
A fiscal year-end refers to the completion date of a corporation’s financial year.
A corporation’s fiscal year can be the same as the calendar year (i.e. January 1 to December 31), but it does not have to be. A fiscal year can differ from the calendar year (such as October 1 to September 30).
The financial year, or fiscal year, is the period of time that the company uses to measure its financial progress, including preparing its financial statements, reporting its financial performance, and preparing its income tax returns.
Choosing a year-end that best suits the corporation’s operational and reporting requirements is crucial.
Factors to Consider
When selecting a fiscal year-end for a corporation based in Canada, there are several factors to consider:
- Business Cycle: Does your business have a natural cycle during the year? For example, a business that is intensely busy in the summer months but quiet after October. Some industries may have seasonal fluctuations, with peak activities occurring during specific months. Aligning the fiscal year-end with the end of the business cycle can simplify financial reporting and analysis, providing a comprehensive view of the company’s financial performance.
- Cash Flow Management: Effective cash flow management is vital for any business. Choosing a fiscal year-end that aligns with the corporation’s cash flow patterns, such as the timing of revenue inflows and expenses, can assist in optimizing working capital and budgeting effectively.
- Alignment with Associated People: For smaller corporations that are owned just by a few individuals, one factor to consider is which fiscal year-end will maximize the personal tax deferral benefits of incorporating, including the tax benefits of paying out excess income via dividends. For corporations that are part of a larger group of companies, consideration will need to be given to what fiscal year-end those affiliated companies use in order for the whole group to work more efficiently.
- Accounting Costs: Accountants are tremendously busy at certain times of the year and less busy at other times of the year. If you can choose a fiscal year-end that results in accountants working on your financial statements and tax returns during a quieter time of the year for them, then you might be rewarded with lower accounting fees.
- Financial Analysis: Financial statements provide valuable insights into a corporation’s performance and financial health. Selecting a fiscal year-end that enables better analysis and comparison of financial data is advantageous. For example, aligning the year-end with industry benchmarks or the fiscal year-ends of key competitors can facilitate meaningful financial analysis and benchmarking.
Typical Fiscal Year-Ends
Considering the factors mentioned above, the most common choices for fiscal year-ends in Canada include:
- Calendar Year-End (December 31st): Aligning the fiscal year-end with the calendar year is straightforward and often simplifies reporting and compliance requirements. It also allows for easier comparison of financial data with other businesses and industry benchmarks. This option is suitable for businesses with no specific seasonal fluctuations and no compelling reasons to choose an alternative fiscal year-end.
- September 30th: This fiscal year-end is popular with corporations because it lands during a less busy time for most accountants. It also opens more possibilities for legitimate tax deferrals for privately held companies. And for some companies, such as construction companies that experience peak activities during the summer months, it aligns well with their natural business year.
- March 31st: This fiscal year-end aligns with the fiscal year of the federal and provincial governments. It might be a meaningful fiscal year-end for some industries, particularly if your business is closely tied to government activity.
How to Choose Your Fiscal Year
The best way to choose your corporation’s fiscal year-end date is to speak with your accountant. Accountants are usually in the best position to give you advice about your fiscal year-end for a few reasons:
- Accountants will understand which of the factors that we listed above are most important to your business and will help you choose a fiscal year-end based on that.
- You will need your accountant to help you prepare corporate tax returns and register your corporation for extra accounts (e.g. HST, payroll, and import/export), so it is a good idea to involve your accountant right from the beginning.
Once you have chosen your fiscal year-end date, you should input it into the Tobuso platform. From there, you can take care of your annual corporate maintenance and filing requirements, which must occur after each fiscal year-end.
We hope this article gives you a better understanding of choosing a fiscal year-end for your corporation in Canada. As every corporation is unique, we recommend seeking professional advice to help you decide the best strategy for your corporation.
No matter what fiscal year-end date you choose, here at Tobuso, we can help you take care of your corporate filings and record upkeep at the end of each fiscal year. We offer a robust platform for managing and sharing your corporate records—secure and reserved for those you trust. Sign up today!
