You may be wondering why you are required to make tax instalments, or if you aren’t required to make them, what would trigger the need to?
If your net income tax owing when you filed your last income tax return exceeded $3,000, you may need to make monthly or quarterly instalments toward your tax bill for next year. The CRA website outlines when you do not have to pay instalments, mainly explaining that new corporations do not need to make instalment payments until their second year of operations.
How much do I need to pay?
The required instalment payment is equal to 1/4 of the tax owing at the end of the previous tax year (eligible small CCPCs can make payments quarerly). For example, if your last taxes owing in the previous year were $4,800, your required instalment payments would be $1,200 per quarter.
When are the tax instalments due?
The instalment payments are due on the last day of every complete month of your tax year, or of every complete quarter if you are an eligible small CCPC. The due dates are dependent on when your business’ tax year begins, the CRA website provides examples of various instalment due dates for corporations with different tax years.
What happens if I don’t pay?
Generally, if you have a balance owing at the end of the year you’ll pay interest on any unpaid instalments dating back to the due date of the missed payments.
What if the CRA requests tax instalments that total more than I owe?
If your instalments through the year total more than your final tax bill, the CRA will give you a refund.
For example, the CRA has requested tax instalments because you owed $4,800 in tax for the previous year. However, you estimate that you will only owe $2,400 in the current year, and use your estimated amount, and choose to pay four instalments of $600 each. If your estimate is correct, and you do not owe any tax at the end of the year, there will be no interest charge for paying less than the requested instalments.
What if the requested instalments total less than I owe?
The CRA will not charge interest for additional tax you owe, assuming that you paid the requested instalment amounts. The CRA does not make it your responsibility to predict that the instalments they requested were not high enough. In other words, you are only responsible for paying the lesser of i) taxes actually owing, or ii) the instalments CRA requested of you, and thus interest will not be charged.