If you owe the CRA money this year through your business in Canada, you may be wondering if you’re required to make tax installment payments.

Tax matters can be confusing and overwhelming, especially for small businesses. The Canada Revenue Agency (CRA) requires that you make payments on your income tax. However, many small Canadian businesses that do not have the cash flow to pay their taxes all at once find it quite draining.

This means that many of them end up paying penalties and interest as a result of late or missed payments. There are several payment options designed to help alleviate the stress and pressure of making these CRA payments in installments.

Can I pay my taxes in installments?

If your net tax owing when you filed your last income tax return exceeded $3,000, you may be required to make quarterly tax installments toward your next tax bill. If this is the case, the CRA expects you to pay in four (quarterly) installments throughout the year – paying your taxes throughout the year, instead of a lump sum at the filing deadline.

How do I know if I’m expected by the CRA to pay in installments?

The CRA will look at your tax return from last year and send reminders to you in the mail. You can also get email reminders if you sign in to your CRA My Account. The due dates are usually: March 15, June 15, September 15 and December 15.

How do I know how much to pay, per installment?

There are three ways to calculate your installment payments for your upcoming year:

No calculation option

If your income, deductions and credits for your upcoming year are about the same from year to year, the CRA determines the number of your installment payments based on the information in your latest assessed tax return. Just pay the same installments every year. If there is a difference due/owing, it will be adjusted when you complete your tax return.

Prior year option

If your upcoming year’s income, deductions and credits will be similar to last year’s amount, but significantly different from two years ago – pay the same installments as last year.

Current year option

If your income, deductions and credits will be different this year from last year and the year before, determine your installments based on this year’s net tax owing.

What happens if I don’t pay in installments?

Failure to pay by installment can result in substantial interest and penalties.

1. Installment interest calculated at 4%
2. Installment interest charges are compounded daily
3. A penalty for making late installments or remitting less than what is expected.

How do I pay my installments?

You can pay through your CRA My Account, set up a pre-authorized payment, pay through your financial institution or send the CRA a cheque (make sure it’s post-marked by the installment deadline).

If you’re looking for an experienced accounting partner who will help take your business to the next level, contact us for more information. Visit our blog for more articles, news and updates about small business accounting, tax planning, CRA audits and bookkeeping.