We will cover the fiscal year-end determination in regard to the following situations:

• New Corporations
• Inactive Corporations
• Change of fiscal year end
• Other Special Situations
• Winding-up / dissolution
• Emigration

New Corporations: Setting up a Tax Year and Filing a Corporate Income Tax Return

Setting up a new corporation can be an exciting yet stressful time for many new business owners. Taxation implications, in particular, constitute one of the most important yet problematic issues of which new corporations must be aware.

First and foremost, corporations must decide on a tax-year. Under Canadian taxation law, the tax year for a corporation is equivalent to its fiscal period and cannot be greater than 53 weeks or 371 days. For instance, suppose that a new corporation’s incorporation date is March 25, 2021. For its fiscal year end, the company may choose any date no longer than 53 weeks or 371 days from its incorporation date as its fiscal year end, or in other words, any date before March 31, 2022. Although a newly incorporated corporation is free to choose any date as its fiscal year end, in practice it is recommended that corporations choose the end of a month as its fiscal year end. For individual income tax purposes, the tax-year end is December 31.

However, for corporation income tax purposes, a corporation may decide not to use December 31 as its fiscal year end, which in turn results in a time difference when filing income for individual and corporate tax purposes. In the example above, suppose that the corporation chooses March 31, 2022, as its fiscal year end. Since the March 31 year end is different from the December 31 year end for individual income tax filing, this may result in those shareholders receiving dividends, bonuses, and other compensation to report these incentives on their individual income tax return the subsequent year. Therefore, corporations should contact their accountant prior to their fiscal year end in order for the accountant to gain a better understanding of the corporation’s financial situation and make appropriate recommendations.

On the other hand, it is worth mentioning that for group companies or otherwise known as multiple corporations controlled by a sole shareholder or same group, it is recommended to talk with your accountant in regard to your group company’s tax planning.
In terms of filing a corporate tax return, the CRA requires that a tax return must be filed within the six months following the end of a tax year. Referring to the example above, since the fiscal year end is March 31, the corporation is thus required to file their corporation income tax return before September 30.

Inactive Corporations

A corporation that has not conducted any business operations during the fiscal year is deemed inactive. A common misconception is held by many businessowners in relation to filing taxes for an inactive corporation, simply believing that because the corporation has not generated any business activity for the fiscal year, it is therefore not required to file corporate taxes. However, this is not the case as the CRA requires that regardless of a corporation’s activity, it is still required to file a tax return as long as it is incorporated. One thing to note is that inactive corporations that do not have any information on their statement of financial position or statement of earnings are not required to fill out schedules 100, 125, 141 on their corporate tax return.

Change of fiscal year end

If under any circumstances that a corporation decides to change its fiscal year end, the corporation must submit a letter to the CRA for approval, citing a full explanation of the details and an effective date for the proposed change. In certain circumstances, such as the change of the fiscal year end occurred automatically, then approval from the CRA is not required.

Other Special Situations

Change of Control
As per ITA ss.249(3.1), deemed year end occurs on change of status and another deemed year end on acquisition of control subject to ss.249(4). If a CCPC’s shares are acquired by a non-resident, it might result in a situation that two deemed year ends will occur.

First, when a formal share purchase agreement is signed, a deemed year end will occur due to the loss of CCPC status.

Afterwards, when the CCPC shares purchase actually occur, this will subsequently result in a second deemed year end subject to ss.249(4). For more detailed information regarding these changes, CRA Technical Interpretation 2011-0424446E5 can be used as a guide.

Winding-up / dissolution

In the course of winding-up of a corporation, the corporation’s fiscal year ends at dissolution.

Note: A corporation with the status 'intent to dissolve' or 'in the process of dissolution' must file as long as they are not entirely dissolved.

Emigration
When a corporation is no longer a Canadian resident, there will be deemed year end due to the change of the corporation’s status subject to ss.128.1(4).