Your Corporation's Year-End Is Coming: 9 Things to Do Before the Books Close

For most owner-managed corporations, the fiscal year-end is the single most important date on the tax calendar. Not the filing deadline. Not April 30. The year-end itself.

Why? Because almost every meaningful tax-planning decision has to be made before the books close. Once your year-end passes, your accountant can only report what happened. Before it passes, we can still change what happens.

If your corporation has a December 31 year-end, you have weeks, not months. Here is what should be on your list.

1. Decide how you will pay yourself this year

Salary, bonus, dividends, or a mix: the answer affects your personal tax, your RRSP room, your CPP, and how much cash stays in the company. A bonus can be declared before year-end and paid later (within 180 days), but the decision and the paperwork have to be in place first. We cover this in detail in our next post.

2. Clean up your shareholder loan account

If you have taken money out of the company that was not salary or dividends, it sits in your shareholder loan account. If it is not repaid within one year after the end of the corporation's tax year in which the loan was made, the full amount can be added to your personal income. Year-end is the time to look at the balance and decide how to deal with it, before it becomes a surprise tax bill.

3. Time major purchases

Equipment, computers, vehicles and renovations can generate capital cost allowance (tax depreciation), but generally only once the asset is acquired and available for use. Buying on December 28 instead of January 3 can move a deduction into this year. Buying something you do not need just for the deduction is never a good idea, but if the purchase is coming anyway, the timing matters.

4. Watch your passive investment income

If your corporation earns more than $50,000 of passive investment income in a year, its access to the small business tax rate starts to shrink the following year, and it is gone entirely at $150,000. Realizing gains, rebalancing or moving investments around year-end can push you over the line. Check before you trade.

5. Accrue the expenses that belong to this year

Professional fees, bonuses to staff, and other costs that relate to this year can often be deducted this year if they are properly recorded. Missed accruals mean you pay tax on income you did not actually keep.

6. Review family compensation

Paying a spouse or adult children through salary or dividends can still work, but the Tax on Split Income (TOSI) rules are strict. Salary must be reasonable for real work performed, and dividends to family members need to fit an exclusion. Year-end is the time to review whether your current arrangement still holds up.

7. Look at your corporate structure

Is it time for a holding company? An estate freeze? A family trust? These are not year-end transactions to rush, but year-end is when the numbers are clearest, and many restructurings are easier to implement at the start of a new fiscal year.

8. Get your records in order now

Reconcile bank and credit card accounts, chase missing receipts, count inventory if you have it, and make sure HST filings match your books. Every hour spent now saves days of back-and-forth in the spring and reduces the risk of errors that attract CRA attention.

9. Put the deadlines in your calendar

For a December 31 year-end, any balance of corporate tax owing is generally due by the end of February (or the end of March for many small Canadian-controlled private corporations), T4 and T5 slips are due by the end of February, and the T2 return is due June 30. Paying late means interest, and filing late means penalties. We explain the real cost in our third post.

The bottom line

Year-end planning is where a good accountant earns their fee. A one-hour meeting in November or December can save thousands of dollars and prevent problems that cannot be fixed after the fact.

Rise CPA LLP works with incorporated business owners and professionals in Brampton, Winnipeg and across Ontario and Manitoba. Book your year-end planning meeting or call (647) 847-1000 before your books close.

This article is general information and is not tax advice for your specific situation. Speak with a CPA before acting on it.