What are “Tax Instalments” and when are they due?
Depending on your situation you may have to pay some type of tax instalment to the CRA throughout the year. These instalments could relate to individual income tax, business income taxes, and even GST/HST sales taxes.
Income tax instalments for individuals and self-employed individuals: Having to pay income tax instalments during the tax year can depend on a couple of factors.
- What your net taxes owing were for the previous tax year, and
- If your net taxes owing in the current tax year will be more than $3,000 (or $1,800 in Quebec)
So how can you figure this out for yourself? Well often, the CRA will notify you if based on your previous income tax return you had more than $3,000 ($1,800 in Quebec) in net income taxes owing and will give you the required instalment amounts they expect you to pay throughout the year. After your income tax return is assessed, you will often get your instalment notice as well, and you may also receive instalment reminders throughout the year.
Now these instalments of course are based on the assumption that your tax situation in the current year is going to be the same or similar as the last year and you’ll end up owing taxes again. If you will be earning more than previous year, then you should increase your instalment payments voluntarily so that you won’t have such a large amount of taxes owing when you file.
If you are employed, you can ask your employer to withhold more income tax on each pay and if you are self-employed, you can increase your instalments but be sure to meet the minimum requested by the CRA. The CRA has created a calculation chart to help you figure out your instalments in just these situations.
If you will be earning less in the current year (or contributing more off your pay cheques), and you estimate your taxes owing will be under $3,000 (or $1,800 in Quebec), then according to the CRA, you can disregard the reminders and won’t need to make any instalments for that tax year.
When are these due?
Individual and self-employed individual income tax instalments are due on March 15, June 15, September 15, and December 15.
Income Tax instalments for corporations: Many Canadian controlled private corporations (CCPC) need to make instalment payments throughout the year to account for the amount of income tax they will owe when they file their corporate returns or that they owed from previous years. There are actually 3 options for quarterly instalment payments for CCPCs, where instalments can be calculated based on current fiscal estimates, previous year’s owing or even a year previous. The CRA will assess your T2 return to determine the option that results in the instalments being the lowest.
Instalment payments only start once the CCPC begins its 2nd fiscal year, and like individuals, you do not have to make any federal instalment payments if your net taxes owing will be less than $3,000 for the current fiscal year.
When are these due?
As corporations can have various fiscal year dates, instalments for corporations are related directly to their fiscal year. They are due the last day of the month or quarter for the fiscal tax year, based on the set up.
Sales Tax instalments for GST/HST registrants: Sales tax is not income tax and that is important to understand. Federally, businesses (whether corporations or self-employed individuals) have criteria surrounding having to register for GST/HST due to their sales and supplies. For those that are registrants, if they are set up as an annual filer, often they are required to make sales tax payment instalments quarterly. Again the CRA has a way to calculate your instalment amounts which you can find in your My Business account.
When are these due?
Instalments with sales tax are for those that are annual filers – now depending on if you’re self-employed or a corporation will determine the due dates as they are based around your fiscal year. SE individuals/small businesses are calendar year (Jan to Dec).
The instalment payments are due at the end of the month following the end of your fiscal quarter period. Your due dates will be found in your CRA My Business Account as well.
What if I don’t make my instalment payments?
If you have been required to pay instalments by the CRA and have decided not to pay them, or are unable to pay them, then you will likely find yourself faced with instalment interest or even an instalment penalty.
Be sure to stay aware of what your responsibilities are whether it is for income or sales tax, so you can file and pay on time and avoid any additional costs.