Fiscal Periods - Options For Corporations

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.

Corporations Corporations have the greatest flexibility, in that they can basically choose any fiscal period end that suits the business ñ 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.

Excerpted from Basic Bookkeeping for Business, one of the courses that comprise the Bookkeeping Services Specialist program.