Fiscal Year-End Rules
Sole proprietors and most partnerships must use a December 31 fiscal year-end under ITA s. 249.1. Corporations may choose any date in the first taxation year. Contrary to widely repeated commentary, Form T1139 — the "alternative method" allowing a non-calendar fiscal year for unincorporated businesses — has not been abolished.
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Guidance, not advice. We explain the rules, we don't assess your situation. Always seek financial or tax advice from your accountant, or contact CRA. Read our editorial scope →
1. The default rule — December 31 (ITA s. 249.1(1))
The fiscal period of an individual, professional corporation member of a partnership, or partnership in which any partner is an individual or professional corporation must end on December 31. This aligns business income with the personal T1 calendar year.
2. T1139 alternative method — still alive
Form T1139 (Reconciliation of 2025 Business Income for Tax Purposes) lets eligible sole proprietors and partnerships keep a non-calendar fiscal year-end and "stub" the period to December 31 for tax. You make a one-time election (Form T1139 in the first year) and file T1139 every subsequent year. The election is irrevocable while the business operates.
The election is most useful where the natural business cycle ends mid-year (farms, summer tourism) or where bookkeeping is genuinely easier on a non-calendar basis. It is not a deferral tool — additional business income is grossed up to December 31 each year.
3. Corporations — pick any date
A corporation's first taxation year ends on the date chosen by the directors, subject to a maximum of 53 weeks from incorporation (ITA s. 249(1)). Once chosen, change requires CRA consent under s. 249.1(7) — usually granted only for sound business reasons (group alignment, acquisition), not tax deferral.
4. Common corporate year-end choices
- December 31 — simplest if shareholders take salary; aligns T4 with T2.
- January 31 — classic owner-manager deferral: bonus declared by Jan 31 is deductible in the corporate year but personally taxable a year later (subject to the 180-day payment rule, s. 78(4)).
- March 31 / June 30 — seasonal businesses ending after their peak.
- July 31 — popular with professional CCPCs to spread workload away from personal tax season.
5. Short fiscal years
A first or final taxation year of less than 12 months requires proratingthe SBD, CCA, and the small business limit ($500k × days/365). The instalment base is also adjusted. Plan incorporation date around the desired year-end to avoid an awkward 51-week first year.
6. Changing your year-end
File Form T2057 (… actually Form T2 short return + letter) requesting CRA consent under s. 249.1(7), explaining the bona-fide reason. Approval normally takes 60–90 days; the transitional short year is filed separately.
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