Generally, if you’re self-employed (sole-proprietor or a partner in a partnership), you need to report your business income on a calendar year basis. However, if your business has a non-calendar fiscal year – one that doesn’t end on December 31 – you’ll need to use form T1139 to reconcile your business income with the calendar year.
If this is the first year of your business operations and you want a non-calendar fiscal year-end, you can elect to do so on form T1139.
Note: H&R Block’s tax software has made it easy for you to complete form T1139 by including the relevant fields within the T2125: Statement of Business or Professional Activities page.
I want to change the fiscal year-end to December 31
It’s important to note that you can only change the fiscal period end date to December 31 if you started your business in 2015 or earlier. If that’s the case and you want to change your fiscal year to end on December 31, you’ll need to enter the following amounts on the T2125 page:
- Net income (loss) for the period that starts after the end of the first fiscal period in 2016 and up to December 31, 2016.
For example, let’s say that your fiscal year is from July 1, 2015 to June 30, 2016. You’ll need to prepare an income and expense statement for your business for the period of July 1, 2016 to December 31, 2016 and enter your net income or loss for that period here.
- Additional business income that was included on your 2015 return. You can find this amount on line G of your 2015 T1139
Keep in mind, you’ll need to complete the T2125 page twice – the first one to report income and expenses for the fiscal year that ends during the year and to indicate that you want to change your year-end and a second one for the period that starts after the fiscal year-end to December 31.
Note: Once you’ve changed the year-end to December 31, you can’t go back to a non-calendar one.
I don’t want to change the fiscal year-end to December 31
If you want to keep your non-calendar fiscal year-end, you’ll need to enter the following information on the T2125 page:
- Additional business income based on your fiscal year-end period (refer to the section below on how to calculate this)
- Additional business income that was included on your 2015 return
How do I calculate additional business income?
If your fiscal year ends in 2016, use the following formula to calculate the additional business income:
(A − B) × C ÷ D, where:
A is your net business income (loss) for the fiscal periods ending in 2016
B is the lesser of:
- the total amount included in item A (see above) that’s a taxable capital gain for the purpose of the capital gains deduction and
- your total capital gains deduction deducted for 2016
C is the number of days you carry on the business after the end of the first fiscal period up to and including December 31, 2016
D is the number of days you carry on the business that are in the fiscal periods ending in 2016.
Example: Sue owns a business with a fiscal period that begins on April 1, 2015, and ends on March 31, 2016. Sue’s net income from the business for the fiscal period ending on March 31, 2016, is $45,000. Sue calculates her additional business income in 2016 as follows:
(A − B) × C ÷ D
A = $45,000
B = 0
C = 275 days (366 days - 91 days for January through March)
D = 366 days (the number of days in the fiscal period ending on March 31, 2016 during which Sue carried on the business)
The amount of additional business income is $33,811.48 [($45,000 - 0) × 275 ÷ 365].
If you started your business in 2016 and your first fiscal period ends in 2017, you can choose to include a part of this business income in 2016. In this case, your additional business income is the lesser of:
- any amount you designate as your additional business income and
- the amount determined by the following formula:
(V − X) × Y ÷ Z, where:
V is your net business income (loss) for the fiscal period ending in 2017*
X is the lesser of:
- the total amount included in item V (see above) that’s considered to be a taxable capital gain for the purpose of the capital gains deduction and
- your total capital gains deduction deducted for 2017
Y is the number of days you carry on the business in 2016 that are in the fiscal period ending in 2017
Z is the number of days you carry on the business that are in the fiscal period ending in 2017
*If these amounts are not known, you can use reasonable estimated amounts.
Once you have your additional business income for the year, enter the following amount on the What was the amount of your additional business income last year? (enter the amount from line G on your 2016 T1139 form) field on the T2125 page:
(Net income for the fiscal period that ends in the year + additional income for the year) - 2015 additional business income
