How to Choose a Fiscal Year-End

It’s one of the first questions people ask themselves after incorporating:

Why choose a fiscal year-end?

A corporation’s fiscal year is an accounting cycle that serves as the basis for its income tax return. At the fiscal year-end, a corporation must prepare its financial statements then file its T2 corporate income tax return. The T2 tax return must be filed within 3 months after the fiscal year-end date to avoid interest and within 6 months to avoid late filing penalties.

So how do I choose a fiscal year ?

Just file your T2 return and your fiscal year will then be set. While the CRA may ask you to choose a fiscal year-end when you first incorporate, this generally relates to your GST/HST filings and can always be changed. Only by filing the first T2 tax return do you lock in your fiscal year.

Note that once you do lock in that fiscal year-end with CRA, it will be a bit of a process to change it. To avoid any hassle and additional professional fees, you want to make sure you choose your year-end carefully.