The requirement for corporations to pay corporate tax instalments is the same as when individual taxpayers have income tax deducted from their paycheque every payday. Just like tax payments sent in on behalf of taxpayers by their employers act like a credit against the amount of tax owing at the end of the year, instalments made by corporations reduce their tax bill when they file their tax return.
What are instalments?
Instalments are tax payments you pay before filing your tax return. Even if your company doesn’t meet the requirement to pay instalments, you can do so voluntarily to avoid a large tax bill at the end of the year. Making smaller payments to the Canada Revenue Agency throughout the year is often more manageable for companies than making a lump sum payment when filing their corporate tax return.
A corporation is required to make instalments once their tax bill exceeds $3,000. All companies are eligible to make monthly payments. If your business is a small Canadian Controlled Private Corporation, you may qualify to make quarterly payments instead of monthly payments.
How much do I pay?
Instalment requirements are calculated as the lower of:
- Current estimated tax payable.
- Previous year’s tax payable.
- The previous year’s tax payable plus the year before the previous year’s tax payable.
Paying instalments isn’t a bad thing. It means your business is profitable and you are putting payments towards your current tax bill rather than having to pay the whole thing in one lump sum when you file your tax return. This can help smooth your cash flow throughout the year.
When do I pay?
If you have to pay instalments, make sure you do. If you don’t make the required payments before you file your tax return, there may be consequences. Monthly instalments are due on the last day of each month (unless you have an unusual year end date like March 20). If this is the case, or if your company is eligible to make quarterly instalments, check with us for your instalment due dates.