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 2023 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 heading below the Credits & deductions 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 2023 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.

You can only change the fiscal period end date to December 31 if you started your business before 2023. 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 2023 to December 31, 2023. For example, let’s say that your fiscal year is from July 1, 2022 to June 30, 2023. You’ll need to prepare an income and expense statement for your business for the period of July 1, 2023 to December 31, 2023 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 2023.

    • Opening and closing inventory – Your closing inventory for December 31, 2023 will be your opening inventory for 2024.

    • Work in progress (WIP) – If your tax year began after March 21, 2022, 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 2022, you can claim these in 2023. If you don’t claim all your 2023 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, 2023, will be the UCC at the start of your 2024 fiscal period.

  • Additional business income that was included on your 2022 return. You can find this amount on line G of your 2022 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.

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 2023) that is considered a taxable capital gain for the capital gains deduction.

  • Estimated additional income included in your return for 2022 (Québec residents) – you can find this amount on line 609 of your 2022 TP-80.1-V form.

  • Amount of your net income (for your fiscal period that ended in 2023) that is considered a taxable capital gain for the capital gains deduction.

  • The estimated capital gains deduction you’ll claim in 2024 – you can find this amount on line 25400 of your T1, and if you’re a Québec resident, you can find this amount on line 292 of your TP-1.

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 2023) 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 2023

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 2023

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, 2023

D  is the number of days you carry on the business that are in the fiscal periods ending in 2023

 

Example: Sue owns a business with a fiscal period that begins on April 1, 2022, and ends on March 31, 2023. Sue’s net income from the business for the fiscal period ending on March 31, 2023, is $45,000. Sue calculates her additional business income in 2023 as follows:

(A − B) × C ÷ D

A = $45,000

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

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, 2023 during which Sue carried on the business)

The amount of additional business income is $33,904.11[($45,000 - 0) × 275 ÷ 366].

If you started your business in 2023 and your first fiscal period ends in 2024, you can choose to include a part of this business income in 2023. 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 2024) is considered a taxable capital gain for the capital gains deduction?

  • What's the estimated capital gains deduction you'll claim in 2024?

 

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:

V  is your net business income (loss) for the fiscal period ending in 2024*

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 2024

Y  is the number of days you carry on the business in 2023 that are in the fiscal period ending in 2024

Z  is the number of days you carry on the business that are in the fiscal period ending in 2024

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