Year-end costs less and produces better tax outcomes when the decisions are made before the fiscal year closes — not four months later when your accountant is reconstructing history.
Week 1: Clean the balance sheet
Reconcile every account, clear the suspense and ask-my-accountant accounts, and confirm that opening balances still agree to last year's filed financial statements.
Write off inventory you will never sell and receivables you will never collect. Both are legitimate deductions and both are commonly missed.
Week 2: Deal with the shareholder loan
A shareholder loan owing to the company must generally be repaid within one year of the corporation's fiscal year-end, or the amount gets included in the shareholder's personal income.
Decide now whether the balance will be repaid, cleared as salary, or declared as a dividend. Each has a different tax and cash consequence, and the deadline is not negotiable.
Week 3: Decide salary versus dividends
Salary is deductible to the corporation, creates RRSP room, and requires CPP contributions and payroll remittances. Dividends avoid CPP but generate no RRSP room and are paid from after-tax corporate income.
The right mix depends on the corporation's taxable income, your personal marginal rate, and whether you want RRSP contribution room. Model both before the year closes — salary must be accrued in the fiscal year to be deductible in it.
Week 4: Capital purchases and filing deadlines
Equipment must be available for use before year-end to claim capital cost allowance in that year. If a purchase is already planned for the following quarter, moving it forward can change the deduction year.
Remember the two dates: T2 corporate returns are due six months after fiscal year-end, but any tax owing is generally payable three months after year-end for a CCPC claiming the small business deduction. Filing on time but paying late still generates interest.
- Balance owing: generally 3 months after year-end for eligible CCPCs
- T2 return: 6 months after fiscal year-end
- T4 and T5 slips: end of February for the prior calendar year
Want this handled for your business?
North Pacific CPA runs bookkeeping, payroll, and year-end for owner-managed companies in Vancouver. Book a 30-minute discovery call and we'll map out what your books need.
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