When you start your own business, you realize how great it was to have taxes magically lifted away from your paycheque. Now, rather than doing your taxes once a year, you’ll have to make tax instalments throughout the year. While it might seem like a drag, we’ll walk you through some ways to make it easy.
Here’s a rundown on tax payment: what types there are, how to figure out how much you owe and when you’ll need to make those payments.
Personal tax instalments
If your net tax owing on your personal tax return is more than $3,000, you need to make quarterly instalments. These will cover any amounts owing for the upcoming tax year.
Your tax instalments are generally based on the tax amount you owe in the prior year. If you want to get specific on the amounts, you can use the CRA’s calculation sheet to determine how much you will owe. If you expect your 2024 tax owing will be similar to 2023, then use your 2023 tax owing and divide it into four equal payments. If 2024 tax owing is predicted to be significantly lower, your accountant can request you instalment schedule to be based on an Estimated amount. This would be used if you happened have a one-off large tax year, like selling a property, which will not recur next year.
These instalments are due on March 15, June 15, September 15 and December 15 (or the next business day if the 15th falls on a weekend or holiday). If you have missed the first couple of payments, you can add them to your third payment.
Corporate tax instalments
If your corporation owed over $3,000 last year, you must make quarterly instalments this year. Take the amount you owed last year, divide it by 4, and pay it each quarter. The CRA may require you to make monthly instalments if you have a less-than-stellar compliance history.
Corporate tax instalments are due at the end of each month or quarterly.
GST instalments
If your business owes more than (you guessed it!) $3,000 in GST, you will need to make instalments. Take the amount you owed last year and divide it into quarterly payments (e.g. If you owed $8,000 in 2023, pay $2,000 quarterly during 2024)
If you think you’ll owe less GST this year, you can calculate your GST instalments based on your best guess for the current year. However, if you underpay, you will owe interest on the underpaid amount.
Your instalments are due within one month of the end of each quarter. If you have a June 30 year-end, your first quarter would be July 1 to September 30, and your GST instalment would be due October 31.
Payroll remittance instalments
Payroll remittances include money you withhold from each employee for personal income taxes, CPP and EI. They are due on the 15th of the month after the employee was paid. For example, your June payroll remittance payment must be paid by July 15.
If your company has no employees, the owners have some flexibility. Generally, the owners will still need to do monthly payroll remittances if they choose to do wages rather than dividends for their own compensation. Owners are usually exempt from EI and can even choose to get paid once a year as an annual bonus, which allows them to make just one single payroll remittance 15 days after their year-end.
If you miss the 15th of the month payment deadline, you’ll be charged with a 10% penalty (5% for the first offence). In Alberta, pay before 10 p.m., which is midnight out east (where the government is). And they will ding you with that 10% penalty!
What if I don’t make the instalments?
As noted in the above sections, instalments are based on your prior year, so if this year looks very similar to last year, you can expect to owe a similar amount in GST and corporate tax.
Here’s how they ding you if you don’t make your instalments:
- If you owe exactly the same amount this year as last year: If you don’t make your instalments, you will be charged interest from the date the instalment was due to the date the amount is paid.
- You don’t owe as much this year: You are only charged interest on instalments if you owe money and do not make the payment. So, say you owed $8,000 last year, and your instalments were supposed to be $2,000/quarter, but you only owe $6,000 this year. If you make no instalments, you will be charged interest on your first three (unpaid) instalments but not your fourth. If you end up owing less than $3,000 and do not make any instalments, you will not be charged any interest.
- You owe more than last year: If you didn’t owe more than $3,000 last year, you don’t need to make instalments. So even if you owe $30,000, you will not be charged interest. If you had instalments to make this year and you know you’ll owe more than those instalments, you only have to pay the calculated amounts based on last year. The remainder must still be paid at the deadline, so make sure you save for this. You can also make additional instalments if you want.
When does interest start being charged?
Each instalment payment has its own interest charge. Your first missed instalment will start accruing interest the day after it was due and continue accruing until it is paid. The same would occur for your second, third and fourth payments.
If your year-end is June 30, 2024, and your instalments were due October 31, 2023, January 31, 2024, April 30, 2024 and July 31, 2024, and you just paid all your tax owing on September 20, 2024, your interest charged would be as follows:
Instalment 1: November 1, 2023 to September 20, 2024
Instalment 2: February 1 to September 20, 2024
Instalment 3: May 1 to September 20, 2024
Instalment 4: August 1 to September 20, 2024
How much interest is charged?
Interest is compounded daily at 10%.
Our Chartered Professional Accountant (CPA) professionals are experts in the constantly evolving tax laws and regulations. We can help you with deductions, write-offs, expenses, tax returns, GST filing, etc.
Read more about Corporate Tax topics relevant to you and your small business. Don’t hesitate to reach out — we’re here to help make tax season a little brighter for you.
There’s a lot to keep track of when it comes to tax instalments. As your small business accountants, we can make sure you never miss a payment, under-pay or owe interest. Make an appointment with us.
