Understanding Corporate Income Tax Installments and Due Dates

Key Takeaways

Tax installment amount can be calculated using an estimate of your taxes for the current year, your taxes for the previous year, or a combination of your taxes for the previous two years.

If a corporation Part XII.3 tax is more than $3,000 in the current or previous year they are required to make tax installment payments.

Canadian-controlled private corporation (CCPC) who have a perfect tax compliance history are eligible to pay income tax installment on quarterly basis.

Corporate income tax installments are due at the last day of each month if the corporation paying the installments on monthly basis, and the last day of the quarter if the corporation is paying on quarterly basis.

The corporations balance-due day is 2 months after the end of your tax year. CCPCs may be eligible for balance-due day 3 months after the end of the tax year.

Understanding the basics of income tax installments and due dates is crucial for any business and business owners. This blog will touch on the basics of tax installments and help you grasp the essentials and ensure your corporation remains compliant.

Income tax installments are periodic payments made throughout the fiscal year by corporations to cover the estimated tax liability of a corporation. These installments help spread the tax burden over the year, rather than paying a lump sum at the end of the fiscal year. Most corporations are required to make these payments to avoid interest charges and penalties. These installments maybe nuisances for corporations but serve as an effective tool for the government to:

maintains a steady cash flow, which helps in managing public finances more effectively;

plan and allocate resources more efficiently, ensuring that public services and projects are adequately funded; and

reduce the risk of corporations defaulting on their tax obligations, as smaller, periodic payments are often easier to manage than a large lump sum.

If a corporation Part XII.3 tax is more than $3,000 in the current or previous year the corporation will be required to make tax installment payments. Similarly, if the corporation has provincial or territorial taxes in excess of $3,000 in the current or previous year, it will be required to make tax installment payments.

The installment amount can be calculated using the worksheet provided in the CRA website, specifically Form T2WS1. There are three options to calculate the installment amount:

An estimate of your taxes for the current year (option 1)

Your taxes for the previous year (option 2)

A combination of your taxes for the previous 2 years (option 3)

The Installment Base is the amount you will owe in installments for the year. This amount is then divided based on your installment intervals:

12 payments if you pay monthly. All corporations are eligible to pay the installments monthly.

4 payments if you pay quarterly

The corporation may be able to pay instalments quarterly if they meet all of the following requirements:

The entity must be a Canadian-controlled private corporation (CCPC)

The corporation must have a perfect compliance history. The CRA considers you to have a perfect compliance history if, during the previous 12 months ending at the time your last instalment was due you remitted on time all the amounts required for GST/HST, Canada Pension Plan contributions, Employment Insurance contributions, Withholding under subsection 153(1) of the Income Tax Act

Together with any associated corporations, for the current or previous tax year the corporation has a taxable income of $500,000 or less AND taxable capital employed in Canada for the tax year of $10 million or less.

If you pay your installment payments on monthly basis, the first payment is due one month less a day from the start of the fiscal year. For example, if your fiscal year is January 1 to December 31, each of the monthly instalment payments is due by the last day of each month during the tax year. The first payment is due by January 31st. The final payment is due by December 31st. If the corporation is paying installments quarterly, the payments are due on March 31st, June 30th, September 30th, and December 31st.

The Balance-Due Day is the date that the corporation must pay any shortfall in the taxes the corporation owes for the remainder of the year after deducting all installments paid. Generally, the corporations balance-due day is 2 months after the end of your tax year. CCPCs may be eligible for balance-due day 3 months after the end of the tax year.

For further information please contact Taxtron Support at 416-491-0333 or visit www.taxtron.ca