Introduction

When a new corporation is registered, the fiscal year end is often set by default to December 31 — the same as the calendar year. Many business owners accept this without much thought.

But the choice of fiscal year end is a genuine planning decision. For the right business, a non-calendar year end can create meaningful tax deferral, smoother cash flow management, and useful timing advantages. For others, a December 31 year end is entirely appropriate.

This article explains why the decision matters and what to consider when making it.

What Is a Fiscal Year End?

A corporation's fiscal year end is the last day of its taxation year — the date on which its books close for the purpose of calculating taxable income and filing its T2 corporate return. Unlike individuals, who are always assessed on a calendar year basis (January 1 to December 31), corporations can choose any date as their year end.

Once chosen, the fiscal year end can be changed — but changes require CRA approval, and approval is not automatic.

The Tax Deferral Opportunity

The most significant reason to consider a non-calendar year end is the salary bonus deferral opportunity for owner-managers.

Here is how it works: A corporation with a January 31 fiscal year end closes its books on January 31, 2026. A bonus paid to the owner-manager by July 31, 2026 (within 180 days of the fiscal year end) is deductible in the year ended January 31, 2026. If the bonus is paid on, say, July 15, 2026, it is included in the owner-manager's personal income in the 2026 calendar year — but it was deducted from corporate income in the year ended January 31, 2026.

This timing difference — between corporate deductibility and personal income inclusion — can create a deferral of personal income tax for several months. At high income levels, the tax deferred can be significant, and the deferred amount can remain invested in the interim.

By contrast, a corporation with a December 31 year end must have salaries or bonuses paid by June 30 of the following year — leaving a much shorter window.

Considerations for Service-Based Professionals

For incorporated professionals in service businesses — physicians, lawyers, dentists, architects — income tends to be relatively consistent across the year. A non-calendar year end creates a fixed annual rhythm: fiscal year closes, financial statements are prepared, the owner's compensation is reviewed, and any bonus is paid before the 180-day deadline.

Some professionals find this cycle useful for planning compensation and managing cash reserves.

Matching Seasonality

For businesses with seasonal revenue patterns — contractors, certain retail businesses, some consulting practices — a fiscal year end that aligns with a natural low point in the business cycle can simplify bookkeeping, inventory counting, and year-end reviews. A construction business whose revenues peak in summer and slow in late fall might choose a November 30 year end to capture a full active season in a single fiscal year.

The Complexity of Multiple Year Ends

If an incorporated professional has a personal corporation and is also a shareholder in another corporation, managing multiple fiscal year ends adds complexity. Where corporations are associated, their income may affect each other's SBD limits, and timing differences between year ends require careful coordination.

Changing Your Fiscal Year End

Changing a fiscal year end requires CRA approval via Form T2 (using a short taxation year return) or a written request. The CRA considers the reason for the change and whether it appears motivated primarily by a desire to obtain a tax advantage. Approvals are not guaranteed, and the process requires filing a return for the short tax year created by the change.

This is another reason to make the decision thoughtfully at incorporation — rather than trying to change course later.

When to Speak With a CPA

The fiscal year end decision is best made at the time of incorporation, when all options are open. If you are considering changing an existing year end, or simply want to understand whether your current year end is working in your favour, a CPA can model the options.

Rotaru CPA helps incorporated professionals make structural decisions — including fiscal year end selection — that work for their specific situation. Book a consultation to discuss your corporate structure.