Several business owners I know face a fiscal year-end right around the corner, on Dec. 31. And they are dreading it.
Why? Not because they had a bad year. It’s because, when they chose the calendar year-end to be their small business’s year-end, they didn’t think through all the pros and cons.
I covered a few considerations to keep in mind when choosing a year-end in last week's column. This week, we’re going to look at what to do if you want to change your year-end.
Why would you want to make that move? Maybe you are in the same position as a couple of businesses I know that face their busiest season now, too close to when their fiscal year-end runs with the calendar year-end.
I can think of two consumer-goods manufacturers that are really hopping during the holiday season. December is their biggest selling month of the year, and showing up on Dec. 31 or Jan. 2 to count inventory is not high on their, or their employee’s, wish list. They’d find it much easier if they had January or even February to let things cool down.
Another reason they might want to make a change: They may only now realize the personal tax-deferral opportunities they are missing out on (I covered that in the column last week).
Whatever the reason, be aware that, if you want to change your year-end, you need to ask permission from the Canada Revenue Agency (CRA).
Why does it care? It’s mostly because changing your year-end creates a short year (under 12 months of revenue and profit) in the year you do it, and that may create both corporate and personal tax advantages. Understandably, if deferring taxes is your only objective, you might not get an easy nod.
With that said, the CRA recognizes there are other reasons why a company might need to make a change. If your reasons fall within its acceptable categories, it is likely to oblige.
But it won’t let you make a habit of it. So plan to get your fiscal year-end choice right.
The CRA will require you to submit a letter to your local tax office, requesting the fiscal date change and explaining why. You do not need to request permission if, for example, your business is being wound up and you are submitting a year-end that is short because of the fact your business will cease to operate.
You also don’t need to seek permission if your business has been acquired and is changing its year-end for reasons that relate to the acquisition (for example, the acquiring entity might want your business’s year end to match its own, to ease the coordination of consolidated statements).
For most businesses, a simple letter explaining the administrative and human resource benefits to this change, among the other explanations that might pertain to you and your business, should do the trick.
If you are a believer in the interpretations of the Mayan calendar that suggest Dec. 21 will be the end of the world as we know it, you may have been taking some fiscal liberties, seeing as you might not be worried about the implications.
For the rest of us though, executing a change to a small business’s year-end is not the end of the world but, rather, a new beginning that may simplify your business administration responsibilities, and create financial opportunities as well.
Special to The Globe and Mail
Chris Griffiths is the Toronto-based director of fine tune consulting, a boutique management consulting practice. Over the past 20 years, he has started or acquired and sold seven businesses.
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