How do I prepare for corporate year-end?

The core reconciliation checklist

Before your fiscal year actually closes, reconcile every bank account and credit card to its statement, review the accounts receivable list for anything that should be written off as uncollectible, and review accounts payable to make sure every bill received has actually been entered. A business carrying inventory should also do a physical count as close to the year-end date as possible and compare it to what the books show, since the difference directly affects reported profit and the cost of goods sold.

Separately, pull together a list of every fixed asset bought or disposed of during the year, equipment, vehicles, leasehold improvements, along with the purchase or sale documentation, since these additions determine what capital cost allowance the corporation can claim. Doing all of this before year-end, rather than after, means any correcting entries happen while the details are still fresh.

Year-end is also the last practical window for proactive tax moves for the year about to close, such as timing a planned capital purchase to fall inside the current year instead of just after it, or reviewing whether accrued expenses are recorded so the year's numbers reflect everything actually owed. Waiting until the return is being prepared months later removes the ability to make any of these decisions, since the year is already closed by then.

Shareholder loans, bonuses, and dividends before the year closes

A shareholder loan withdrawn from the corporation generally needs to be repaid within one year after the end of the corporation's taxation year in which it was made, or it risks being added to the shareholder's personal income instead. Reviewing this balance before year-end, rather than discovering it during tax preparation, leaves time to repay it, convert it to a bonus or dividend, or otherwise document it properly before the deadline passes. This review is also a natural moment to confirm that interest, if any was charged on the loan, has actually been recorded, since the CRA can impute a taxable benefit where a loan was interest-free or charged below the prescribed rate.

A bonus accrued at year-end is deductible to the corporation in that year only if it is actually paid within 180 days of the year-end date, even though it is only taxable to the recipient in the year they receive it. Deciding between a year-end bonus and a dividend, and how much of each, needs to happen before or very shortly after the year closes, since it affects both the corporation's tax bill and the shareholder's personal tax position.

HST, payroll, and related-party documentation

Before year-end statements are finalized, the total HST collected and paid according to the books should be tied out against the GST/HST returns actually filed during the year, and payroll remittances in the books should be tied out against what was actually reported to the CRA. A mismatch here, even a small one, is exactly the kind of thing that draws attention if the corporation is ever selected for review. A common cause of mismatch is a GST/HST return filed on a cash basis while the books are kept on an accrual basis, or a payroll correction made after a remittance was already filed; catching either before year-end is far simpler than explaining it after the fact.

Rent paid to a shareholder personally, management fees between related corporations, or any other transaction between the corporation and a related party should be documented with the terms and amounts clearly recorded before year-end, not reconstructed from memory afterward. This documentation supports the amounts on the tax return and is exactly what a bank, a potential buyer, or the CRA would ask to see if the transaction were ever questioned.

What to hand your accountant, and when everything is actually due

A complete year-end package usually includes bank and credit card statements for the full year, the reconciliations above, the fixed asset list, any loan or lease agreements signed during the year, payroll year-end summaries, and copies of the GST/HST returns filed. Handing this over as one organized package, rather than answering follow-up requests one at a time over several weeks, is what actually shortens the time it takes to get finished statements back. For the corporate return itself, having a full trial balance ready, not just summarized financial statements, lets the accountant map the numbers to the CRA's GIFI codes without going back to ask for additional detail partway through preparation.

A T2 corporate tax return is due six months after the corporation's fiscal year-end. The balance of tax owing is generally due two months after year-end, or three months after year-end for many Canadian-controlled private corporations claiming the small business deduction; which deadline applies depends on the corporation's specific circumstances, so it is worth confirming with your accountant rather than assuming the longer deadline applies by default. Our guide on year-end tax planning for incorporated businesses covers the planning moves worth making before the year closes, on top of this checklist.

How we run year-end for clients

As part of our bookkeeping and accounting work, we send clients this checklist several weeks before their year-end date, not after, so reconciliations, the inventory count, and the bonus-or-dividend decision all happen while there is still time to act on them. A year-end package assembled calmly in advance produces better decisions than one assembled under deadline pressure. Booking a short meeting with your accountant a month or two before year-end, specifically to walk through this checklist together, catches issues while there is still time to fix them rather than after the return is already being prepared.