Corporate tax instalments: who pays them, and how often
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A corporation whose tax payable is over CAD 3,000 generally pays in instalments through the year, monthly, or quarterly for some small CCPCs.
Short answer: a corporation generally has to pay its income tax in monthly or quarterly instalments through the year if its tax payable is more than CAD 3,000. It does not have to if its tax payable is CAD 3,000 or less for either the current or the previous tax year. Most corporations pay monthly. A small Canadian-controlled private corporation (CCPC) that meets the CRA’s conditions can pay quarterly. Interest is compounded daily on instalments left unpaid.
Who has to pay
Corporations generally pay in monthly or quarterly instalments when their total tax is more than CAD 3,000. The threshold applies to federal tax under Parts I, VI, VI.1 and XIII.1 of the Income Tax Act. Instalments are separate from the balance of tax, which is due after year end, as the T2 deadline guide explains.
Who can pay quarterly
- The corporation is a CCPC.
- It has a perfect compliance history.
- It claimed the small business deduction for the current or the previous tax year.
- Together with its associated corporations, its taxable income for the current or the previous year is CAD 400,000 or less.
- Its taxable capital employed in Canada for the year is CAD 10 million or less.
Three ways to work out the amount
- Option 1: an estimate of the tax for the current year, paid as one-twelfth each month.
- Option 2: the previous year’s tax, paid as one-twelfth each month.
- Option 3: a combination based on the previous two years’ tax. The CRA’s calculation page and the Corporation Instalment Guide set out the formula.
A corporation in its first year has no earlier year to base the amount on, so it would typically use the estimate of the current year. A fictional example: a corporation whose tax payable last year was CAD 24,000 and which uses option 2 pays CAD 2,000 a month. The figures are invented.
What late instalments cost
Interest is calculated and compounded daily on any unpaid balance of instalment payments. The CRA’s pages set out the interest and penalty rules for instalments, and they are separate from the late-filing penalties on the T2 return.
What your books need to show
- A tax estimate during the year. Monthly books produce the profit figure the estimate starts from.
- Each instalment recorded as tax paid in advance, so the year-end balance of tax is the tax payable less what was paid.
- The calculation option chosen and the due dates, so each payment is made on time.
Does my corporation have to pay tax in instalments?
Generally yes if its tax payable is more than CAD 3,000. It does not have to if its tax payable is CAD 3,000 or less for either the current or the previous tax year.
Can a small corporation pay quarterly?
A CCPC can, if it has a perfect compliance history, claimed the small business deduction for the current or previous year, has taxable income with its associated corporations of CAD 400,000 or less, and has taxable capital employed in Canada of CAD 10 million or less.
How are instalments worked out?
By one of three options: an estimate of the current year’s tax, the previous year’s tax, or a combination of the previous two years’ tax.
What does a late instalment cost?
Interest, compounded daily on the unpaid balance. The CRA’s pages set out the rules.
T2 deadline and late penalties →
Your first T2 after incorporating →
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