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Anything that concerns money nowadays must be handled carefully, from budget managed through
lovemoney to profit-oriented businesses. To make a business successful, it takes a great vision, relationship, judgment, planning, perseverance, energy and most of all, the ability to overcome failure. But in addition to all that, you need to do and know the numbers behind your business plan, and get organized for a closer relationship with CCRA! a reality for every business owner/manager.
FISCAL PERIODS - AN OVERVIEW BY
BUSINESS TYPE
 A
fiscal period is any period of time for which an
enterprise prepares its accounts. Most business
enterprises have a fiscal year, and many report more
frequently and also have fiscal months and fiscal
quarters for internal reporting purposes.
Strictly from an accounting perspective, there are
no constraints on the fiscal period an enterprise
can choose. Thus, accounting records can be
maintained and financial statements can be prepared
for any period of time that provides useful
information to the owners and managers.
There are often government-imposed regulations which
restrict an enterprise's flexibility in choosing its
fiscal periods. Most of these arise under the Income
Tax Act. Some of these restrictions apply generally;
some vary with the type of organization.
General Restrictions The Income Tax Act
provides:
- a new fiscal period starts immediately after
the end of the prior fiscal period,
- a new fiscal period must generally end 12
months after it began,
- a corporation is permitted to have a fiscal
period that is up to 53 weeks long,
- a professional corporation must use a calendar
fiscal period,
- the general rule is that the fiscal period for
a proprietorship must end on the last day of the
calendar year in which it began. However, see the
more detailed commentary below,
- once a fiscal period has been established, it
cannot be changed without the prior written
consent of the taxation authorities. Permission
will only be granted where the change is requested
for business and not tax-planning reasons.
Proprietorships The general rule is that any
business enterprise carried on by an individual must
have a calendar fiscal year, to coincide with the
individual proprietor's taxation year.
The Income Tax Act does permit most
individuals to elect not to report their business
activities using a calendar year fiscal period.
However, where such an election is made, the
individual is required to report a notional amount
of income on his or her income tax return, to
represent an estimate of what the business's
additional income would have been if the fiscal
period had not ended before December 31. Because of
this accounting for notional “stub-period income”,
very few individuals elect to report business income
on anything other than a calendar year fiscal
period.
Example – Proprietor's Fiscal
Period
Gillian starts a bookkeeping business, as a
proprietor, on April 17, 20X8. Unless she elects
otherwise, her first fiscal year will cover the
period April 17, 20X8 to December 31, 20X8. Her
second fiscal year will start January 1, 20X9 and
end December 31, 20X9.
Partnerships A partnership can have any
fiscal period it wants, except if an individual, a
professional corporation or another partnership
which itself has an individual or professional
corporation as a member, is a member – in which case
the fiscal year must be the calendar year. In other
words, if any individual or professional corporation
is either directly, or through one or more
intermediary partnerships, a partner in the
partnership, the partnership must have a calendar
fiscal period end. Otherwise, it can choose any
fiscal period end it likes.
Example – Partnership Fiscal
Period
Acme Partnership has three partners, a chartered
bank, a real estate development corporation and an
insurance company. Acme Partnership would like to
operate with an October 31 year end. Is this
permitted?
Yes. Because none of Acme Partnership's partners is
an individual, a professional corporation or another
partnership in which either an individual or
professional corporation is a member, Acme
Partnership is free to choose any fiscal period it
wants. If it chooses October 31, it will have fiscal
periods starting November 1 and ending October 31
for as long as it is in existence, unless it obtains
prior written approval to change its year end.
Corporations Corporations have the greatest
flexibility, in that they can basically choose any
fiscal period end that suits the business – save
only that a professional corporation must use a
calendar fiscal year. Each fiscal period can be up
to 53 weeks long. Generally, only corporations
engaged in retailing choose to vary their year ends,
using the 53-week rule, so that each fiscal year has
the same number of business days in it as the year
before. The vast majority of corporations have their
fiscal periods end on the same day each year.
Example – Fiscal Period for a
Corporation
Acme Corporation was incorporated on June 13, 20X8,
when Articles of Incorporation were filed. What
flexibility do the officers of Acme have in
selecting its first year end?
Acme can choose any year end it likes, so long as
the first does not end more than 53 weeks after June
13, 20X8. Normally, a corporation will choose a year
end that coincides with a slow period in its
business cycle. Such a year end may free up time for
the bookkeepers, accountants and management to
prepare year-end financial statements and other
reports.
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