Reconciliation of Business Income for Tax Purposes (T1139/TP-80.1-V)

Generally, if you’re self-employed (sole-proprietor or a partner in a partnership), you need to report your business income earned from a business in Canada on a calendar year basis (that is, from January 1 to December 31). However, if your business year doesn’t end on December 31, you’ll need to reconcile your business income with the calendar year by using form T1139: Reconciliation of 2018 Business Income for Tax Purposes.

If your Québec business has a fiscal period end date that’s not December 31, you’ll need to complete the TP-80.1-V: Calculation of Business or Professional Income, Adjusted to December 31, in Québec form to calculate your business or professional income that’s adjusted to December 31.

Note: H&R Block’s tax software has made it easy for you to complete the T1139 and TP-80.1-V forms by including the relevant fields within the business and self-employment income forms (T2125/TP-80, T2121, and T2042) under the EMPLOYMENT icon of the PREPARE tab.

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 the business and self-employment income form that applies to you.

Note: The end date of any fiscal period for your business must be the same for both your federal return and your Québec return. If you’ve filed form T1139 in order to have a fiscal period that doesn’t end on December 31, remember to also send that form to Revenu Québec.

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 before 2018. If you want to change your fiscal year to end on December 31, you’ll need to enter the following amounts on the business and self-employment income page that applies to you:

  • Net income (or loss) from the end of your first fiscal period in 2018 to December 31, 2018. For example, let’s say that your fiscal year is from July 1, 2017 to June 30, 2018.  You’ll need to prepare an income and expense statement for your business for the period of July 1, 2018 to December 31, 2018 and enter your net income or loss for that period here. Be sure to include the following in your calculation:
    • Reserves – add any reserves you deducted in your fiscal period ending in 2018
    • Opening and closing inventory – Your closing inventory for December 31, 2018 will be your opening inventory for 2019.
    • Work in progress (WIP) – If your tax year began after March 21, 2017, you can no longer elect to exclude amounts for WIP. Refer to the Canada Revenue Agency (CRA) website for more information.
    • Business-use-of-home expenses – If you had unused home office expenses from 2017, you can claim these in 2018. If you don’t claim all your 2018 home office expenses on your return, you can carry forward these amounts to a future year.
    • Capital cost allowance (CCA) – The undepreciated capital cost (UCC) at the end of your fiscal period ending on December 31, 2018, will be the UCC at the start of your 2019 fiscal period.
  • Additional business income that was included on your 2017 return. You can find this amount on line G of your 2017 T1139.

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 your business and self-employment income page:

  • Additional business income based on your fiscal year-end period - Refer to the section below on how to calculate this. If you don’t know your additional business income, you’ll need to enter the amount of your net income (for your fiscal period that ended in 2018) that is considered a taxable capital gain for the capital gains deduction.


  • Estimated additional income included in your return for 2017 (Québec residents) – you can find this amount on line 609 of your 2017 TP-80.1-V form.


  • Amount of your net income (for your fiscal period that ended in 2018) that is considered a taxable capital gain for the capital gains deduction.


  • The estimated capital gains deduction you’ll claim in 2019 – you can find this amount on line 254 of your T1, and if you’re a Québec resident, you can find this amount on line 292 of your TP-1.


How do I calculate additional business income?

Fiscal year ends in 2018

If you indicated on your business and self-employment income page that you know your additional business income, make sure you used the following formula to calculate the additional business income.

Note: If you don’t know your additional business income, you’ll need to enter an amount in the following field for the tax software to calculate your additional business income: How much of your net income (for your fiscal period that ended in 2018) is considered a taxable capital gain for the capital gains deduction?

 

Additional business income formula:

(A − B) × C ÷ D, where:

A   is your net business income (loss) for the fiscal periods ending in 2018

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 2018

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, 2018

D  is the number of days you carry on the business that are in the fiscal periods ending in 2018

 

Example: Sue owns a business with a fiscal period that begins on April 1, 2017, and ends on March 31, 2018. Sue’s net income from the business for the fiscal period ending on March 31, 2018, is $45,000. Sue calculates her additional business income in 2018 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, 2018 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 2019

If you started your business in 2018 and your first fiscal period ends in 2019, you can choose to include a part of this business income in 2018. If you know your additional business income, make sure you used the formula provided below to calculate it.

Note: If you don’t know your additional business income, you’ll need to enter amounts in the following fields for the tax software to calculate your additional business income:

  • How much of your net income (for your fiscal period that ended in 2019) is considered a taxable capital gain for the capital gains deduction?
  • What's the estimated capital gains deduction you'll claim in 2019?

 

Additional business income formula

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 2019*

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 2019

Y  is the number of days you carry on the business in 2018 that are in the fiscal period ending in 2019

Z  is the number of days you carry on the business that are in the fiscal period ending in 2019

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

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