Corporate Tax Installments in Canada: What You Need to Know

Understanding Corporate Tax Installments

If your corporation expects to owe more than $3,000 in federal corporate taxes for the year, the Canada Revenue Agency (CRA) requires you to make installment payments throughout the year. These payments help businesses manage their tax obligations more effectively and prevent large lump-sum payments at year-end.

For corporations with a December 31 year-end, corporate tax installments are due either monthly or quarterly, depending on the corporation’s tax history and size.

When Are Corporate Tax Installments Owed?

The frequency and due dates of corporate tax installments depend on the corporation's tax liability from the previous year.

If a corporation owes $3,000 or more in federal corporate tax, it must make monthly installments, which are due on the last day of every month. However, small Canadian-controlled private corporations (CCPCs) with taxable income of $500,000 or less and a perfect compliance history may qualify for quarterly installments. The quarterly installment due dates are March 31, June 30, September 30, and December 31. If the corporation owes less than $3,000 in the prior year, no installments are needed, and the full payment is due by the tax filing deadline.

Who Needs to Make Installments?

A corporation must make installments if its total federal corporate tax payable was $3,000 or more in the prior year. If the prior year’s tax payable was below this threshold, the corporation can pay the full balance as a lump sum by the tax filing deadline, which is six months after year-end.

How to Calculate Corporate Tax Installments

CRA allows three methods to calculate your installment amounts:

1. Prior Year Method: Divide last year's tax payable by 12 and pay that amount each month.
2. Current Year Method: Estimate your current year's corporate tax liability and divide it by 12.
3. Combination Method (Recommended by CRA): The first two installments are based on last year’s tax, and the remaining ten are adjusted based on the current year’s estimated tax.

Example of Monthly Installments

If a corporation had $12,000 in tax payable in 2023 and expects a similar amount for 2024, it would need to pay $1,000 per month from January to December 2024.

Example of Quarterly Installments

If a corporation qualifies for quarterly installments and owed $12,000 in 2023, it would make payments of $3,000 each on March 31, June 30, September 30, and December 31.

GST/HST Installments: Do You Need to Pay?

If a corporation had net GST/HST payable of $3,000 or more in the prior year, it must also make quarterly GST/HST installment payments.

GST/HST Installment Due Dates

The four installment due dates for GST/HST payments are April 30, July 31, October 31, and January 31 of the following year.

How Much to Pay for GST/HST Installments?

Each quarterly GST/HST installment payment should be one-fourth of the previous year's net GST/HST payable.

What Happens If You Miss an Installment?

Failing to make the required corporate tax or GST/HST installments on time can result in CRA interest charges and potential penalties. CRA charges compound daily interest on late or missed installment payments.

Key Takeaways

Corporate tax installments are required if a corporation’s federal tax payable exceeds $3,000 in the prior year. Monthly installments are due on the last day of each month, while eligible small CCPCs may qualify for quarterly payments. If a corporation also has net GST/HST payable of $3,000 or more in the prior year, it must make quarterly GST/HST installment payments. Late or missed payments may result in interest and penalties from CRA.

Ensuring timely installment payments can help corporations avoid unnecessary penalties and maintain compliance with CRA requirements. If you need help calculating your corporate tax or GST/HST installments, consult a professional accountant to ensure accurate tax planning.