For many taxpayers, including corporations and individuals with significant income, paying taxes through instalments is required. In this blog post, we will explore the concept of tax instalments, why they are necessary, how they work for both corporate and personal taxpayers, and provide practical tips to ensure compliance with the CRA.

Corporate Tax Instalments

When it comes to corporate tax instalments, businesses are required to make regular payments throughout the year, based on their estimated tax liability. The CRA mandates this to ensure a steady flow of revenue and prevent significant tax liabilities from accumulating at the end of the year. 

Calculating Corporate Tax Instalments

Corporate tax instalments are based on the estimated net tax owing for the current tax year. Corporations use the previous year’s tax return as a starting point to estimate the upcoming year’s tax liability. Adjustments are made for changes in income, deductions, and tax credits. 

Due Dates and Payment Schedule

Corporate tax instalments are due quarterly, with specific due dates falling on the 15th of each month following the end of a fiscal quarter. The due dates are as follows: March 15th, June 15th, September 15th, and December 15th. Corporations must ensure they make timely payments to avoid penalties and interest charges.

Penalties and Interest

Failure to make or underpay corporate tax instalments can result in penalties and interest charges. The CRA applies an interest charge on any unpaid instalment amounts, calculated from the due date to the date of payment. The penalties for late or insufficient instalments can be significant and should be avoided by meeting the payment obligations.

Personal Tax Instalments

For high-income individuals, self-employed individuals, and those who receive income without tax deductions at the source, personal tax instalments are mandatory. The CRA requires these individuals to remit their taxes throughout the year to ensure timely revenue collection. Here are some essential aspects to consider:

Determining Personal Tax Instalments

The CRA calculates personal tax instalments based on an individual’s estimated net tax owing for the current tax year. Similar to corporate instalments, the previous year’s tax return serves as a starting point, with adjustments made for changes in income, deductions, and tax credits. 

Due Dates and Payment Schedule

Personal tax instalments are also due quarterly, with due dates falling on the 15th of each month following the end of a fiscal quarter. The due dates are: March 15th, June 15th, September 15th, and December 15th. Individuals must ensure they make timely payments to avoid penalties and interest charges.

Exceptions and Thresholds

Personal tax instalments are mandatory for individuals whose net tax owing exceeds the CRA’s threshold. If the tax liability for the current or preceding year is $3,000 or more ($1,800 for residents of Quebec), individuals are generally required to make instalment payments. It is essential to review these thresholds each year to determine if instalments are necessary.

Compliance and Tips

Ensuring compliance with corporate and personal tax instalments is crucial to avoid penalties and interest charges.

Accurate Estimations

Regularly review and update your estimated tax liability to ensure accurate instalment calculations. Consider any significant changes in income, deductions, or tax credits that may impact the final tax liability.

Maintain Detailed Records (Bookkeeping)

Keep comprehensive records of your income, expenses, and deductions throughout the year. This will help you calculate your estimated tax liability accurately and provide necessary documentation in case of a CRA review.

Timely Payments

Mark the due dates for instalment payments on your calendar or set reminders to avoid missing deadlines. Late payments can result in penalties and interest charges, so ensure your payments are made on time.

Consider Online Payment Options

The CRA offers various online payment options, including pre-authorized debit, online banking, and credit card payments. These methods can help streamline the payment process and ensure timely remittance.

Seek Professional Advice (OLS Partners)

Tax laws and regulations can be complex, especially for businesses and individuals with intricate financial situations. Consider seeking advice from a tax professional or accountant who can guide you through the process and ensure compliance with the CRA’s requirements.

Conclusion

Corporate and personal tax instalments are an essential aspect of fulfilling tax obligations in Canada. Understanding the calculation methods, due dates, and compliance requirements is crucial for both businesses and individuals. By estimating tax liabilities accurately and making timely payments, taxpayers can avoid penalties and interest charges. As tax laws and regulations evolve, staying informed and seeking professional advice (OLS Partners) when needed will help navigate the complexities of tax instalments and maintain a positive relationship with the CRA.