I’m seeking some advice regarding the reporting of incorporation fees for tax purposes. Our incorporation took place in February 2023, and our fiscal year ends on December 31st. According to our understanding, we can expense up to $3,000 of these fees in the year of incorporation.
Typically, incorporation fees are recorded as assets. However, since we’ve paid less than $3,000 federally and provincially combined:
Should we record the amount as expenses directly? If so, given that the anniversary of the incorporation is in February, should only 11/12 of the amount be recorded as expenses in 2023, with 1/12 recorded as assets?
Alternatively, should we record the full amount as fixed assets and then amortize the entire amount under CCA class 14.1?
Does this expense treatment only apply to the first incorporation year? What about annual renewal fees?
I would greatly appreciate any insights or experiences you can share on this matter.
Yes, unless you have some requirement to follow ASPE or IFRS.
No - expense the full amount. And, “11/12” makes sense only if you are choosing a December 31 year-end date - don’t do that unless you hate your accountant. Choose any other month for your year-end. Your accountant will thank you.
Technically, you could, but why bother? It just makes more work for your accountant.
My apologies If my question was not clear. I mean by 11/12 is to prorate the the amount for 11 months over 12, as the incorporation happened in February. but the fiscal year end is always 12/31.
No it’s not. It’s a CHOICE. The year-end date is not established until you file the first corporate tax return. You can choose any date of the year, but most people choose the last day of a month.