It’s that time of year again! If you are approaching your corporate year end and dreading the accounting and bookkeeping, or not sure where to start, you’re not alone.
Why do you need an Accounting Year End engagement?
It’s important to get your year end and tax accounting done to a high standard by a CPA firm for several reasons: (1) accountant prepared financial statements are required by lenders, investors and government agencies alike, (2) a poorly prepared year end may trigger a painful audit by the CRA, a costly re-statement, or a lost opportunity for funding, and (3) the year end is also an important exercise for corporate governance and compliance.
What happens in the Year End engagement?
A CPA with years of experience navigates constantly shifting tax law, prepares hundreds of pages of documents and puts their name on your statements. Your Year End engagement will include:
- Quick check to see if you are ready
- Bookkeeping fixes if necessary
- Compile Notice To Reader (NTR) Financial Statements
- Prepare T2 Corporate income tax filing
- Review with you, sign off
- Submission to the CRA, final Financial Statements and adjusting entries
And now here’s our tips to prepare for a Year End …
5 Tips to prepare for a Year End
1. Choose your Fiscal Year End date carefully
If your company was recently incorporated and you’ve never filed your Corporate Taxes with the Canada Revenue Agency (CRA), then you don’t officially have a Year End date yet. The Year End date is set when you first file with the CRA and you can choose any date within 53 weeks of your incorporation date (more details here).
The exact month you choose does not matter, though many companies choose Dec 31st as their Fiscal Year End because it lines up with the calendar year. It makes sense, so why not? Some companies have their busy season in the winter (e.g. retailers), also some companies know that their accountants will be busy during ‘tax season’ in the spring.
If you already have an established Fiscal Year and want to change your Fiscal Year End date, it’s no problem! You’ll just have to file a ‘short year’ or stub year.
2. Know your dates and requirements
Most corporations have to pay their corporate income taxes within 3 months after their Fiscal Year End. For instance, if you have a Dec 31st year end:
- Tax payment is due March 31st (3 months)
- Tax filing is due June 30th (6 months)
Keep these dates on your calendar!
Why do you have more time to file than to pay? How do you know how much to pay if you haven’t filed? Many corporations have complicated books and/or are behind on their record keeping, so the CRA allows you to take your time to get the filing right. But they want their money sooner than later, so they ask that you make a payment of an estimated amount owing.
It’s really just best to complete the accounting and the payment before the 3 months are up…more on that next.
3. Start Early
Particularly if you have a December 31st Year End, you should approach your accountant as early as possible to avoid unneeded stress and missing your dates. In fact, we recommend talking to your accountant on or before your Fiscal Year End date!
This will help you both get ready, plan out the work and get it done with no stress. Also, your accountant will need to have a formal Engagement Letter signed – it’s a CPA requirement. Getting this signed early means your accountant can be more responsive with answering questions and giving advice.
4. Have your bookkeeping done by a professional
In order to start an accounting Year End engagement (T2 tax filing and NTR Financial Statements), your accountant will need to know that the books are complete and accurate. The accountant must look over the numbers to see if they’re reasonable before proceeding with filings.
If your accountant sees obvious errors like incomplete bookkeeping, negative expenses, balances not matching last year’s filings, etc., there will need to be a clean-up project, and it will likely take you more time and headache to try to catch-up and clean-up the books on your own. Many accountants offer bookkeeping services or catch-up bookkeeping projects – Entreflow does. If you need this kind of help, approach us before your Year End so we have time to fix it.
5. Know about Government incentives and tax planning, or Ask
The government of Canada offers some great innovation support programs and incentives for Canadian small businesses, with COVID relief measures in 2020 offering further support. There are so many credits and programs available that we can’t list them all here, and not all of them apply in all situations. So ask an accountant!
Entreflow is very familiar with the kinds of programs and tax credits that technology startups and small manufacturing companies often receive. We’re happy to help.
Bonus tip: Do I need an Audit?
We get this question all the time, so I thought I’d include it here. The answer is: for Canadian small businesses, typically no. There are three levels of Year End Engagements that accountants can perform and the difference is mostly in the level of assurance provided:
- Audit: the highest level. The accounting firm examines the corporations accounting records and documentation in detail to satisfy themselves and external parties that the books and financial statements are accurate and complete
- Review: some level of examination and checking of the books is done
- Compilation: the accounting firm simply compiles the financial statements and the ultimate responsibility for the accuracy of the books falls on the corporation itself. This is the most common as it is usually required for startups and small businesses seeking loans, investment or access to government programs. It results in a Notice to Reader on the Financial Statements.
Get help with preparing your accounting year end
A CPA accountant trained in tax is the best person to help you navigate the complexities of Canadian tax law, and the even bigger complexities of doing business across borders. Here’s how to get help:
- Talk to Entreflow accountants in Vancouver
- Talk to our accountants in Toronto
- Review our corporate tax services.
- Get started early. Make tax efficient plans, then execute them, then prepare and file your taxes.