As we move into 2013, I’d like to take this opportunity to wish all of our readers and their families a happy New Year from all of us at Hull & Hull LLP. May this year bring happiness, health and prosperity for all of you.
Though December 31 marks the end of the calendar year, January 1 is only one of many new year celebrations throughout the year. Chinese New Year is only just approaching. It falls on February 10 in 2013. The Jewish new year celebration, Rosh Hashanah, marks the beginning of the Hebrew calendar at sunset on September 4.
Perhaps the least welcome New Year’s Eve of all is the end of the tax year. When tax is calculated, a taxpayer’s income for a (typically) yearlong period is measured, and income tax is applied to it accordingly. This period need not start on January 1, however.
Typically, an individual’s tax year coincides with the calendar year, as per section 249(1) of the Income Tax Act (the “ITA”). A corporation, however, may have its fiscal year end at any time in the year.
For an estate, the matter becomes a little bit more complex. When a person dies, tax is calculated on the income earned by the deceased individual between the end of their last tax year and the date of death. A “terminal” tax return must be filed for this period.
Income earned after the death of the individual will be attributed to the estate. The estate must then file tax returns for this income. The day following the date of death will be the first day of the first tax year for the estate. For an estate or testamentary trust, the fiscal year end does not need to coincide with the calendar year. The Estate Trustees may choose a day on which the tax year ends and Tax New Years are grimly observed, provided the tax year does not exceed 12 months. (see section 104(23) of the ITA). This is something Estate Trustees may want to consider when dealing with tax issues, as there may be advantages to selecting one date over another.
Happy New Taxation Year, and thank you for reading!