Tax installments are payments made on a monthly or quarterly basis to the provincial and federal governments. The total of the installments equals the total amount of business tax, capital tax, and compensation tax that must be paid throughout a corporation’s taxation year. Depending on your situation, the corporate tax deadline may vary and you may need to pay the CRA tax payments quarterly. These payments may be for GST/HST sales tax, personal income tax, or corporate income tax.
Installment payments
Taxes for enterprises are often paid in instalments. A tax installment represents a fraction of the annual tax obligation. Companies must pay in installments under the Income Tax Act to be treated similarly to individuals who have tax withheld at source.
Who has to pay taxes in instalments?
Most businesses in Quebec and the rest of Canada are required to pay their taxes over time in installments. The purpose of this technique is to prevent corporations from receiving preferential treatment over taxpayers whose taxes are withheld at the source.
Various factors determine whether businesses must abide by regulations. Corporations are required to pay taxes in installments in the following situations:
- More than $3,000 in combined income tax and capital gains tax is owing for the current tax year, AND
- There are more than $3,000 in unpaid income tax and capital gains tax for the previous year.
The tax on financial institution remuneration is not considered.
A newly established company is not required to make instalment payments during the first year of operation.
Corporate tax deadline
Corporations’ installments are strongly related to their fiscal year since enterprises may have different fiscal year dates. The corporate tax deadline might be the last day of the month or quarter for the fiscal tax year, depending on the structure.
What would happen if I didn’t pay?
You will often be assessed interest on any past-due payments dating back to the missed installments’ due date if you still owe money at the end of the year.
What if the tax demand isn’t what you really owe?
You will get a refund from the CRA if your annual tax payments are more than your final tax due. The CRA won’t charge interest on any extra tax you owe, provided you’ve made the necessary monthly payments. You do not have to assume that the CRA will find the planned payments insufficient. You are only required to pay a smaller amount, in other words;
- Taxes to be paid actually, or
- No interest will be charged on the payments demanded by CRA.
How to calculate taxes owed
If your company meets the aforementioned requirements, you must pay your provincial and federal business taxes over time.
Revenue Québec offers Form CO-1027 to help businesses figure out their monthly provincial tax payments. This calculation is based on:
- The anticipated income tax obligation of the business for the current tax year
- The foundation for the first income tax payment (income tax payable for the previous taxation year)
- The foundation for the second income tax payment (income tax payable for the year before)
The CRA offers a mechanism for calculating installment payments, which is accessible via your CRA business profile. There are three different methods for figuring out tax payments, and each one is based on one of the following:
- Current year
- Previous year
- A combination of current and previous years
The calculation approach that enables corporations to pay the least amount of tax is the one they may choose.
