Required Tax Instalments for Individuals
As an individual, you may have to pay tax instalments to Canada Revenue Agency (CRA) if your income does not have the appropriate amount of tax withheld, or if you are self-employed, have rental or investment income, certain pension payments, or have income from more than one job. Instalments are requested if your net tax owing in either of the two previous years was more than $3,000.
CRA will notify you if you are likely to have to pay tax instalments. You will receive a reminder in February for March and June payments, and in August for September and December payments. Instalment reminders can be found in My Account.
Instalment interest and possible penalty charges will be applied if you do not pay your required tax instalments, or if you have paid insufficient amounts.
You will be charged instalment interest if all the following apply:
- You are required to pay by instalments.
- You receive an instalment reminder that shows an amount to pay
- You did not make any of your instalment payments, paid late, or paid less than what you had to pay
CRA charges instalment interest on all late or insufficient instalment payments. Instalment interest is compounded daily at the prescribed interest rate, which can change every three months.
You may have to pay a penalty if your instalment payments are late or less than the required amount. The penalty is applied only if your instalment interest charges are more than $1000.
To calculate the penalty, CRA determines which of the following amounts is higher:
- If a flat rate of $1000 is higher, you are charged $1000
- If 25% of the interest is higher, you are charged 25% of the instalment interest you would have paid if you had not made instalment payments
CRA subtracts the higher amount from your actual instalment interest charges, and then divides the difference by two and the result is your penalty.
You can find more information on instalment interest and penalties for individuals here.
Required Tax Instalments for Corporations
Generally, corporations have to pay their federal taxes in monthly or quarterly instalment payments. An instalment payment is a partial payment of the total amount of tax payable for the year.
Instalments are calculated based on the components of the federal Income Tax Act that apply to your corporation, as well as your provincial or territorial tax. For more information on instalment requirements based on different parts of the Income Tax Act, click here.
In the following cases, corporations do not have to pay instalments:
- New corporations in their first year of operation do not have to make instalment payments until the second year of operation. However, for the first year of operation, you have to pay any tax owed on or before your balance-due day for that tax year.
- You do not have to make instalment payments on your federal taxes if the total of your taxes payable determined before taking into consideration specified future tax consequences, and prior to the deduction of current-year refundable tax credits, is $3000 or less for either the current or previous year.
- You do not have to make an instalment payment for a tax year that is shorter than one month, or in the case of an eligible small Canadian controlled private corporation, shorter than one quarter.
Instalment interest is applied to corporations if late or insufficient instalment payments are made. When instalment interest is more than $1000, CRA may charge an instalment penalty.
For more information and an example of how instalment interest and penalties are calculated, click here.
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