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Last updated: May 19 2010
Fiscal Periods - Options For Partnerships
As discussed in last week's issue of Knowledge Bureau Report, 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.
Partnerships A partnership can have any fiscal period it wants, except if an individual, a professional corporation or another partnership which itself has an individual or professional corporation as a member, is a member ñ in which case the fiscal year must be the calendar year. In other words, if any individual or professional corporation is either directly, or through one or more intermediary partnerships, a partner in the partnership, the partnership must have a calendar fiscal period end. Otherwise, it can choose any fiscal period end it likes.
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Example ñ Partnership Fiscal Period |
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Acme Partnership has three partners, a chartered bank, a real estate development corporation and an insurance company. Acme Partnership would like to operate with an October 31 year end. Is this permitted? Yes. Because none of Acme Partnership's partners is an individual, a professional corporation or another partnership in which either an individual or professional corporation is a member, Acme Partnership is free to choose any fiscal period it wants. If it chooses October 31, it will have fiscal periods starting November 1 and ending October 31 for as long as it is in existence, unless it obtains prior written approval to change its year end. |
Excerpted from Basic Bookkeeping for Business, one of the courses that comprise the Bookkeeping Services Specialist program.
