Many taxpayers are surprised to learn that the CRA may require payments throughout the year instead of waiting until a tax return is filed. Whether you’re an individual, a corporation, or an HST registrant, understanding your installment obligations can help you avoid unexpected interest and penalties.
Individuals & Sole-Proprietorships
The CRA may require personal tax installments when you have a history of owing tax once your return is filed. In many cases, the CRA will send installment reminders outlining suggested payments and due dates.
A common question we hear is: “What if my income has dropped this year?”
You may be able to reduce your installments if you expect your tax liability to be lower. However, if the reduced payments turn out to be insufficient, the CRA may charge installment interest. Before adjusting your payments, it’s a good idea to review your situation with your accountant.
Corporations
Many corporations are required to make corporate income tax installments throughout the year. Unlike individuals, corporations generally do not receive installment reminders from the CRA. It is the corporation’s responsibility to determine whether installments are required and ensure payments are made on time.
If your corporation’s income has decreased, you may be able to reduce your installment payments. However, installment requirements are often based on prior-year tax balances, and underpaying can lead to interest charges. Before changing your payment schedule, consider discussing your projections with your accountant.
HST Registrants
Businesses that file annual GST/HST returns may also be required to make quarterly GST/HST installment payments. Similar to corporate tax installments, these requirements are generally based on prior-year filings. If your sales or taxable revenues have declined, you may be able to reduce your installments, but caution is warranted. If actual GST/HST owing exceeds the amount of installments paid throughout the year, interest may apply.
Because installment requirements can vary depending on your filing history and current business activity, it’s important to review your situation regularly.
Not Sure if You Need to Make Installments?
Installment requirements can apply to individuals, corporations, and HST registrants—and they are often based on prior-year results rather than current-year income. If your income or business activity has changed, don’t assume your installment obligations have changed as well. Reducing installment payments may be appropriate in some situations, but underpayments can result in interest charges.
As a client of TGC, please refer to your personal tax cover letter or your year-end cover letter, where we outline any income tax and HST installment requirements, including payment amounts, due dates, and instructions on how to make your payments. This can be particularly helpful since the CRA generally does not send installment reminders to corporations.
If you’re unsure whether installments are required or whether your payments should be adjusted, our team is happy to help! Please contact us at info@tgccpa.ca for more information.