How does a corporation pick its fiscal year end, and what does it take to change it later?
As of October 2026, a corporation can pick any tax year end, as long as its first year runs no more than 53 weeks (371 days) from incorporation. Changing it later needs CRA approval under 249.1(7), by letter to the tax services office, unless an acquisition of control, amalgamation, CCPC status change or emigration forces a deemed year end.
How far out can a new corporation set its first year end?
A new corporation can choose any tax year end as long as its first tax year doesn't exceed 53 weeks from incorporation or amalgamation, and the CRA puts 53 weeks at 371 days canada.ca. The rule comes from paragraph 249.1(1)(a): a corporation's fiscal period can't end more than 53 weeks after it began, and later changes need the Minister's concurrence under 249.1(7)
laws-lois.justice.gc.ca. Subsection 249(1) makes that fiscal period the corporation's taxation year
laws-lois.justice.gc.ca.
Worked example: your client incorporates on September 15, 2026. Counting September 15 as day one, here is what each first year end gives.
| First year end | Days in first year | Business limit for that year | T2 due |
|---|---|---|---|
| Dec 31, 2026 | 108 | $500,000 × 108 ÷ 365 = $147,945 | Jun 30, 2027 |
| Jun 30, 2027 | 289 | $500,000 × 289 ÷ 365 = $395,890 | Dec 31, 2027 |
| Aug 31, 2027 | 351 | $500,000 × 351 ÷ 365 = $480,822 | Feb 29, 2028 |
| Sep 14, 2027 | 365 | $500,000 | Mar 14, 2028 |
| Sep 30, 2027 | 381 | Not allowed: over 371 days | None |
The 351 day year is the trap. It looks like a full year, but paragraph 125(5)(b) prorates the $500,000 business limit by days over 365 for any tax year shorter than 51 weeks, which is 357 days laws-lois.justice.gc.ca. Pick September 14, 2027 and the first year gets the whole limit. The latest permitted first year end in this example is September 20, 2027, day 371. More on the limit itself is on the small business deduction page.
The T2 dates follow the six month rule: a year ending on the last day of a month files by the last day of the sixth month, and any other year end files by the same day of the sixth month canada.ca. That's why August 31, 2027 files by February 29, 2028 and September 14, 2027 by March 14, 2028. The payment dates are on the T2 filing deadline page.
A longer first year also delays cash out. A corporation doesn't pay Part I, VI, VI.1 or XIII.1 instalments in its first tax year after incorporation; that tax is due by the balance due day instead canada.ca.
Which events end the tax year without CRA approval?
A corporation's fiscal period normally stays the same from year to year unless the CRA approves a change, but some events end the tax year on their own and need no approval canada.ca.
| Event | What happens to the tax year | Authority |
|---|---|---|
| Acquisition of control (a loss restriction event) | Ends immediately before control is acquired | ITA 249(4)(a) |
| Becomes or stops being a CCPC, other than through an acquisition of control | Ends immediately before the change | ITA 249(3.1) |
| Amalgamation | Each predecessor files a final return for the period ending immediately before the effective date | T4012, line 076 |
| Emigration | The corporation must end its tax year | CRA |
| Becomes exempt from tax, or stops being exempt | The corporation must end its tax year | CRA |
| Dissolution | Final return for an abbreviated fiscal period | CRA |
After an acquisition of control, the corporation files a return for the year ending immediately before control was acquired, and its next year can end at any time within 53 weeks without approval canada.ca. Paragraph 249(4)(a) treats the corporation as never having established a fiscal period before the event, which is what frees the new year end
laws-lois.justice.gc.ca. The same treatment applies on a CCPC status change under 249(3.1). The loss restrictions that come with the deemed year end are on the acquisition of control page.
On an amalgamation, the new corporation's first tax year can't run longer than 53 weeks from the amalgamation date, and it files Schedule 24 with its first return canada.ca. When the old year ends and the new one starts on the same day, report hours and minutes on the 24 hour clock. The tax accounts that carry over are on the section 87 amalgamation page.
Bankruptcy is the odd one out: a corporation that becomes bankrupt still needs CRA approval to change its fiscal period canada.ca.
How do you ask the CRA to change an existing year end?
Write to your client's tax services office asking for approval, and give the reasons for the change and the effective date; the CRA says leaving those out may delay the request canada.ca. The legal hook is subsection 249.1(7): no change in the time a fiscal period ends may be made without the Minister's concurrence
laws-lois.justice.gc.ca.
Neither the Act nor the CRA page lists the reasons the CRA accepts. The letter has to carry the case on its own, so state the business reason plainly, name the first new year end, and send it well before that date so the transition return isn't filed on a guess.
Worked example: Opco has a December 31 year end and gets approval to move to June 30, effective 2027. Its year ended December 31, 2026 is normal. The transition year runs January 1 to June 30, 2027, which is 181 days.
| Item | Transition year: Jan 1 to Jun 30, 2027 |
|---|---|
| Days | 181 |
| Business limit | $500,000 × 181 ÷ 365 = $247,945 |
| CCA on most classes | Full year amount × 181 ÷ 365 |
| T2 due | Dec 31, 2027 |
| Next full year | Jul 1, 2027 to Jun 30, 2028, T2 due Dec 31, 2028 |
The business limit proration comes from 125(5)(b), since 181 days is under 51 weeks laws-lois.justice.gc.ca. The CCA proration and its exceptions are covered below.
Why the year end decides when an accrued bonus is deductible
Salary, wages and other remuneration that the corporation accrues and still hasn't paid on the 180th day after the end of the taxation year aren't deductible in that year. They become deductible in the year actually paid. Reasonable vacation or holiday pay and amounts under a salary deferral arrangement are excluded laws-lois.justice.gc.ca. That's subsection 78(4).
The employee side runs on cash: subsection 5(1) taxes salary, wages and other remuneration received by the taxpayer in the year laws-lois.justice.gc.ca. So the year end sets both the deduction deadline and which T1 the bonus lands on.
| Corporate year end | Day 180: still unpaid moves the deduction | Corporation deducts in | Employee reports on |
|---|---|---|---|
| Dec 31, 2026 | Jun 29, 2027 | Year ended Dec 31, 2026 | 2027 T1 |
| Jun 30, 2026 | Dec 27, 2026 | Year ended Jun 30, 2026 | 2026 T1 |
| Jul 31, 2026 | Jan 27, 2027 | Year ended Jul 31, 2026 | 2027 T1 |
Count from the day after year end. For July 31, 2026: August (31), September (30), October (31), November (30) and December (31) make 153 days, and 27 more in January reach day 180. Pay by January 26, 2027 (day 179) to stay clear of the 180th day test; still unpaid on January 27 and the deduction slides into the year ending July 31, 2027. The planning side is on the 180 day bonus accrual page.
What a short tax year does to instalments and CCA
In a short tax year, a monthly payer makes one instalment for each complete month in the year, and an eligible small CCPC pays one for each complete quarter. In the CRA's example, a year running January 15 to August 31 has 7 monthly or 2 quarterly instalments, and a year shorter than one month (one quarter for quarterly payers) needs none canada.ca.
When the previous year was short and serves as the instalment base, its tax is adjusted to a 12 month equivalent. A change of control doesn't restart the instalment history: the corporation continues as it was before, and an amalgamated corporation generally takes the total of its predecessors' instalment bases canada.ca. The three calculation options are on the corporate tax instalments page.
For CCA, multiply the full year maximum by the days in the tax year over 365. Regulation 1100(3) exempts some classes, including classes 14 and 15 and certain mining equipment in classes 28 and 41 canada.ca. Schedule 8 mechanics are on the T2 Schedule 8 page.
Sources
Can the year end float, like the last Saturday of the year?
Yes. The CRA doesn't treat it as a change of fiscal period when a corporation always ends its year on a chosen day of the week, as long as the period doesn't exceed 53 weeks canada.ca. If a long year means no taxation year ends in a calendar year, subsection 249(3) cuts the year at December 31 and starts the next one on January 1
laws-lois.justice.gc.ca.
What if control is acquired a few days after the year end?
The corporation can elect to stretch the old year. Under 249(4)(b), if its last taxation year would otherwise have ended within the seven days before the acquisition of control, that year is deemed to end immediately before the acquisition instead, and the election goes in the return for that year laws-lois.justice.gc.ca. The T4012 says to attach a letter making the election
canada.ca. With a December 31, 2026 year end and a closing on January 5, 2027, that saves a four day stub year and a T2.
How many T2 returns does a change of year end create?
One extra, for the short transition year, due six months after it ends canada.ca. Moving from December 31 to June 30 in 2027 means returns for December 31, 2026 (due June 30, 2027), the short year to June 30, 2027 (due December 31, 2027), and June 30, 2028 (due December 31, 2028).
General information for the tax year shown, not advice for a specific client. Confirm the facts before you file or remit.