When your fiscal year ends, making sure your year-end financial statements are ready for taxes is a crucial task for any Canadian company. Being well-organized when preparing your accounting records at year’s end supports federal compliance, decision-making, and your annual tax filing.
In this guide, you will learn how to close your books correctly, avoid making mistakes, and prepare your taxes for the year with calm.
1. Understand Your Financial Year End in Canada
In Canada, a company’s financial year end is not necessarily December 31. Corporations can select any year-end date within 53 weeks of incorporation. However, aligning your fiscal year end with the calendar year or your industry’s slow season often simplifies reporting and cash flow management.
Once selected, the date remains consistent unless officially changed with CRA approval. Changing it may require filing a short tax year (stub period).
2. Know Your Tax Deadlines
For Canadian corporations, understanding tax deadlines is essential when preparing year-end financials for tax purposes:
- Corporate tax payments are due within three months after your financial year end.
- Corporate tax returns (T2) must be filed within six months of the year-end.
For example, if your year-end is December 31, your payment is due by March 31, and your filing is due by June 30. Paying on time, even before you finalize your return, helps you avoid interest and penalties.
3. Start Year-End Preparation Early
Starting your year-end accounting checklist early avoids last-minute stress and allows time for data cleanup and advisor consultation. Ideally, initiate planning a month before your fiscal year end. Early prep also ensures you can take advantage of tax planning opportunities and government incentives before the books close.
Key steps to begin early include:
- Scheduling a meeting with your accountant.
- Reviewing outstanding transactions and liabilities.
- Collecting all necessary financial documents.
If you’re looking for a cloud-based tool to manage your books efficiently, platforms like MyBooks Accounting can help automate expense tracking, generate real-time financial reports, and keep your bookkeeping audit-ready for year-end.
4. Clean Up Your Bookkeeping
A clean general ledger is the backbone of reliable year-end financial statements in Canada. Before passing your records to your accountant:
- Reconcile all bank and credit card accounts.
- Ensure all income and expense entries are up-to-date.
- Review accounts receivable and payable for accuracy.
- Adjust inventory counts if applicable.
- Record depreciation and amortization.
Many businesses also need to make year-end adjustments such as accruals, prepayments, and deferred revenue. Your bookkeeper or accountant can guide you here.
5. Finalize and Review Year-End Financial Statements
Your year-end financial statements in Canada include:
- Income Statement (Profit and Loss)
- Balance Sheet
- Cash Flow Statement
These documents not only support your tax return but also offer valuable insights into your company’s performance. Review them with your accountant to identify:
- Profitability trends.
- Areas for cost reduction.
- Tax liabilities and payment strategies.
6. Compile and Organize Supporting Documents
CRA requires accurate recordkeeping to back up your claims. As part of your end-of-year tax preparation, gather:
- Sales invoices and receipts
- Expense receipts and supplier bills
- Bank and credit card statements
- Loan and lease agreements
- Payroll records and T4 slips (if you have employees)
Organizing these in a secure, accessible digital format can streamline the review and filing process.
7. Evaluate Tax Planning Opportunities
Don’t wait until tax filing to optimize your tax position. Proactive year-end planning can reveal opportunities such as:
- Claiming capital cost allowance (CCA)
- Using carry-forward losses
- Making RRSP or corporate pension contributions
- Prepaying eligible expenses
- Evaluating eligibility for tax credits (e.g., SR&ED, digital media, or provincial incentives)
Consult a tax advisor to explore which options are available for your situation.
8. Choose the Right Financial Statement Engagement
Depending on your business’s size and needs, you may prepare:
- A Compilation (unaudited, for internal use or basic lender requirements)
- A Review Engagement (moderate assurance)
- An Audit (high assurance, often required by investors or regulators)
Most small to mid-sized Canadian businesses opt for a compilation unless external stakeholders require more formal reporting.
9. Review for Compliance and Regulatory Changes
Before submitting your return, ensure your processes reflect the latest CRA requirements. Changes to tax law, available credits, or industry-specific rules can affect your filings. Consider:
- Reviewing CRA news releases or publications
- Confirming GST/HST compliance
- Ensuring payroll remittances and reporting are up-to-date
Your accountant or bookkeeper should assist in flagging any changes relevant to your industry.
10. Learn from the Process for Next Year
Once your year-end financials are filed, schedule a post-filing review. Evaluate what went well and what could be improved. Consider implementing better systems for:
- Document management
- Receipt tracking (using apps like Dext or Hubdoc)
- Regular reconciliations
- Quarterly financial reviews
Improving processes now will make next year’s financial year end in Canada more efficient and less stressful.
About MyBooks Accounting
MyBooks Accounting offers both powerful cloud-based accounting software and expert bookkeeping services designed for Canadian small businesses. With features like automated bank feeds, expense tracking, invoicing, and real-time reporting, MyBooks helps simplify your financial operations year-round. For businesses looking for hands-on support, their team also provides cleanup services, controller-level insights, and tax filing assistance, making them an excellent partner for your year-end accounting needs.
Final Thoughts
Preparing year-end financials for tax in Canada doesn’t have to be overwhelming. With the right strategy, organization, and professional support, you can complete your year-end accounting checklist confidently, meet all CRA requirements, and gain insights that help your business grow.
Start early, stay organized, and leverage your year-end financial statements in Canada not just for compliance, but as a tool for strategic planning.
Frequently Asked Questions
How to report tips on tax return in Canada?
Employees must report all tips and gratuities as income on their personal tax return (T1). Tips can be controlled (processed through the employer) or direct (given straight to the employee). Both must be declared, and controlled tips are typically included on the T4 slip.
What is the deadline for year-end financials in Canada?
For corporations, tax payments are due three months after the fiscal year-end, and T2 tax returns must be filed within six months. Individual sole proprietors have until June 15 to file, though any balance owing is due by April 30.
What is included in a year-end financial checklist?
A complete year-end accounting checklist includes bank reconciliations, accounts receivable/payable reviews, adjusting entries (like depreciation and accruals), inventory count updates, and preparation of key financial statements: income statement, balance sheet, and cash flow statement.
What are CRA requirements for year-end financial reporting?
The CRA requires accurate and complete records, including financial statements, supporting documentation, and compliance with GST/HST and payroll rules. Businesses must maintain these records for at least six years and ensure filings are timely and accurate.
