Changing your fiscal year-end in Canada is possible, but it is not a date you can simply move on your own. For a corporation, the Canada Revenue Agency (CRA) generally must agree in writing before the change takes effect. For a sole proprietor or a partnership of individuals, the default is a December 31 year-end, and a different fiscal period is handled through an election on Form T1139, Reconciliation of Business Income for Tax Purposes. In both cases, getting the sequence wrong — changing first and asking later — can leave the CRA assessing you on your original year-end.
This guide explains who can change a year-end, when CRA approval is required, what a short tax year means for filing, and the mistakes that most often cause a refusal.
Why Would a Business Change Its Fiscal Year-End?
A year-end is usually kept the same from year to year, so a change should have a genuine business reason. Common legitimate reasons include:
- Aligning a subsidiary’s year-end with its parent company after an acquisition
- Matching the year-end to the business’s natural seasonal cycle, so the year closes when activity is lowest and inventory is cleanest
- Aligning reporting across a corporate group so consolidated statements and tax returns line up
- A change in ownership, a merger or amalgamation, or a restructuring that makes the old year-end impractical
Convenience alone is a weak reason, and tax deferral on its own is not a valid reason. The CRA reviews each request to make sure the change serves the business, not simply to push tax into a later year.
Who Can Have a Year-End Other Than December 31?
The answer depends on the business structure, and the old idea that only three structures can have a non-December year-end is misleading. The rules are:
Corporations. A corporation’s tax year is its fiscal period, and it cannot be longer than 53 weeks (371 days). A new corporation can choose any year-end as long as its first tax year is not longer than 53 weeks from incorporation (or from formation by amalgamation). It declares that year-end on its first T2 return, and the financial statements or General Index of Financial Information (GIFI) attached to the return must match it. One exception: a professional corporation that is a member of a partnership and carries on business in Canada must have a December 31 tax year-end.
Sole proprietors and partnerships. Self-employed individuals generally have to use a December 31 year-end. An eligible individual, or a partnership whose members are all individuals, can elect an alternative method — a fiscal period that does not end on December 31 — by filing Form T1139. Once that election is made, T1139 generally has to be filed again each year to reconcile business income to the calendar year. The election is not available in every situation: for example, it cannot be used by an individual who is a partner in a partnership that is itself a partner in other partnerships, or where a professional corporation is a partner.
How to Change Your Fiscal Year-End in Canada
For an established corporation, the process is:
- Decide the new year-end and the business reason before you act. Document it — for example, a board resolution recording the reason and the effective date. A reason invented after the fact reads exactly like one.
- Write to your tax services office asking for approval. Include the reasons for the change and its effective date. The CRA warns that leaving these details out can delay processing.
- Wait for approval before treating the new year-end as final. Unless an exception below applies, the corporation’s tax year stays the same from year to year until the CRA has agreed to the change.
- File a short tax year return. Changing mid-year does not stretch a year beyond 53 weeks. It creates a short transitional fiscal period ending on the new year-end, and a separate T2 is filed for that short period. The next full year then runs from the new year-end.
- Reset every deadline that keys off the year-end. A corporate tax return (T2) is due within six months of the end of the fiscal period — by the last day of the sixth month if the year-end falls on the last day of a month, otherwise by the same day of the sixth month. Instalment dates, GST/HST reporting periods and payroll cycles that were built around the old year-end must be updated too, and amounts such as capital cost allowance are prorated for a short period.
How to Change a Sole Proprietor’s or Partnership’s Fiscal Period
This is an election, not a CRA approval letter. An eligible sole proprietor or all-individual partnership files Form T1139 to elect the alternative method and reconcile the business income for the fiscal period to the calendar year for tax purposes. If you have filed T1139 before, you generally file it again each year. If you later want to return to a December 31 year-end, Form T1139 has a section for cancelling the election. Because the election changes how income is reported each year — including an additional business income calculation — take advice before electing, rather than assuming a non-December year-end simply defers tax.
When No CRA Approval Is Needed (Corporations)
In some situations the tax year ends by operation of law, so no approval request is needed. These include:
- The corporation has wound up and is filing its final return with an abbreviated tax year
- The corporation must end its tax year because it is emigrating from Canada, becoming exempt from tax, or ceasing to be exempt from tax
- A person or group of persons acquired control of the corporation
Note the important exception in the other direction: a corporation that becomes bankrupt must get CRA approval to change its tax year. Dissolution and bankruptcy are not the same thing, and assuming a bankrupt corporation is exempt from the approval rule is a costly mistake.
Why the CRA Refuses a Year-End Change
The CRA refuses requests made mainly to reduce tax or for the personal convenience of the taxpayer. A request with no documented business reason, a proposed period longer than 53 weeks, or a history of late or non-compliant filing will also struggle. If the change is refused, the original year-end stands — so do not file on the new dates, close the books on the new dates for tax purposes, or tell lenders and the GST/HST system that the year has moved until approval is in hand.
Year-End Change Checklist
- Confirm your structure and which route applies: CRA approval letter (corporation) or T1139 election (eligible sole proprietor/partnership)
- Put the business reason in writing before the request
- Check the 53-week cap (corporations) and that no period is stretched to fit the new date
- Plan for a short-period T2 and prorated claims
- Update instalments, GST/HST periods and payroll calendars
- Keep the approval letter or the filed T1139 with the year’s tax file
Frequently Asked Questions
Can I change my corporation’s year-end without CRA approval?
Generally no. Unless one of the by-operation-of-law situations applies, you need the CRA’s agreement first, requested by letter to your tax services office with reasons and an effective date.
How long can a corporation’s fiscal period be?
No longer than 53 weeks (371 days). A mid-year change therefore creates a short transitional period, not a longer one.
Does a sole proprietor have to use December 31?
Generally yes, unless an eligible sole proprietor or all-individual partnership elects the alternative method with Form T1139 and reconciles income to the calendar year each year.
What happens if I change my year-end and the CRA refuses?
The original year-end stands. Filing on the new dates without approval risks reassessment on the original dates, so wait for approval before acting on the change.
When is the T2 due after a year-end change?
Within six months of the end of each fiscal period, including a short transitional period — by the last day of the sixth month for a month-end year-end, otherwise by the same day of the sixth month.
If you are considering a year-end change, talk to Filing Taxes first. We can review your structure, draft the approval request or T1139 election, and handle the short-period return so the change is clean from the first filing. Call (416) 479-8532 or contact us for a free consultation.
Disclaimer: This article provides general information only. It does not consider your personal situation and is not a substitute for advice from accounting and tax professionals.
