Are you the owner of a newly incorporated business and unsure whether you need to pay your corporate tax in instalments?
This article written by our tax experts will help you figure it out!
What are corporate tax instalments?
Tax instalments are monthly or quarterly payments to the provincial and federal governments. The instalments add up to the amount of business tax, tax on capital or compensation tax for financial institutions that must be paid during a corporation’s taxation year.
Who pays tax instalments?
In Quebec and the rest of Canada, the vast majority of corporations are required to pay their taxes by instalments. This measure exists so that corporations are not favoured over taxpayers whose taxes are withheld at source.
There are specific factors that determine which corporations have this obligation. Incorporated businesses must pay taxes in instalments if:
- The total income tax and tax on capital due for the current tax year exceeds $3,000, AND
- The total income tax and tax on capital due the previous year exceeds $3,000
The compensation tax for financial institutions is not taken into consideration.
A business that has just been incorporated is not required to pay instalments for its first year in operation.
How to calculate tax instalments
If your corporation meets the criteria listed above, you are required to pay both federal and provincial business taxes in instalments.
Revenue Québec provides form CO-1027 to help corporations calculate their provincial tax instalments. The calculation is based on:
- The corporation’s estimated income tax for the current taxation year
- The first instalment base of income tax (income tax payable for the previous taxation year)
- The second instalment base of income tax (income tax payable for the year before)
The CRA offers an instalment calculator service that can be accessed through your CRA business profile. The tax instalment calculation can be done using three different methods, each of which is based on one of the following:
- The current year
- The previous year
- A combination of the previous year and the year before
Corporations are allowed to choose the calculation method they prefer based on which enables them to pay the least tax.
Need help with your corporate taxes?
The vast majority of incorporated businesses are required to pay their taxes in instalments if applicable.
The tax authorities provide tools to help eligible corporations make their calculations more easily. However, depending on the situation, a company may need professional guidance to ensure that its tax affairs are in order.