T1139: Reconciliation of Business Income for Tax Purposes

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: Reconciliation of Business Income for Tax Purposes 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 the T1139 form by including the relevant fields within the T2125: Statement of Business or Professional Activities page under the EMPLOYMENT icon of the PREPARE tab.

I want to change the fiscal year-end to December 31

You can only change the fiscal period end date to December 31 if you started your business in 2016 or earlier. If 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 (or loss) from the end of your first fiscal period in 2017 to December 31, 2017.

For example, let’s say that your fiscal year is from July 1, 2016 to June 30, 2017.  You’ll need to prepare an income and expense statement for your business for the period of July 1, 2017 to December 31, 2017 and enter your net income or loss for that period here.

  • Additional business income that was included on your 2016 return. You can find this amount on line G of your 2016 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 date, and a second one for the period that starts after the fiscal year-end date up until December 31.

Note: Once you start using a calendar fiscal year (year-end date of December 31), you can’t go back to using a non-calendar fiscal year. 

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)

How do I calculate additional business income?

Fiscal year ends in 2017

If your fiscal year ends in 2017, 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 2017

B   is the lesser of:

  1. the total amount included in item A (see above) that’s a taxable capital gain for the purpose of the capital gains deduction and
  2. your total capital gains deduction deducted for 2017

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, 2017

D  is the number of days you carry on the business that are in the fiscal periods ending in 2017

 

Example: Sue owns a business with a fiscal period that begins on April 1, 2016, and ends on March 31, 2017. Sue’s net income from the business for the fiscal period ending on March 31, 2017, is $45,000. Sue calculates her additional business income in 2017 as follows:

(A − B) × C ÷ D

A = $45,000

B = 0 (since this is the first fiscal year of the business)

C = 275 days (365 days - 90 days for January through March)

D = 365 days (the number of days in the fiscal period ending on March 31, 2017 during which Sue carried on the business)

The amount of additional business income is $33,904.11 [($45,000 - 0) × 275 ÷ 365].

First fiscal year ends in 2018

If you started your business in 2017 and your first fiscal period ends in 2018, you can choose to include a part of this business income in 2017. In this case, your additional business income is the lesser of:

  1. any amount you designate as your additional business income and
  2. the amount determined by the following formula:

(V − X) × Y ÷ Z, where:

 is your net business income (loss) for the fiscal period ending in 2018*

X  is the lesser of:

    1. 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
    2. your total capital gains deduction deducted for 2018

Y  is the number of days you carry on the business in 2017 that are in the fiscal period ending in 2018

Z  is the number of days you carry on the business that are in the fiscal period ending in 2018

*If these amounts are not known, you can use reasonable estimated amounts.

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