Corporate Tax Instalments in Canada: Who Must Pay, Monthly vs. Quarterly, and Due Dates
Corporate tax planning in Canada doesn’t end when you file your T2 return. Most corporations that owe income tax must make installment payments throughout the year, rather than paying the entire amount after the tax year ends.
These types of payments allow enterprises to distribute their tax liabilities throughout the year. However, if a payment is missed or is made in insufficient amounts, this will be enough for interest charges to be levied, regardless of whether the tax that needs to be settled is finally paid or not.
Grasping who is required to pay corporate tax installments, how to calculate those amounts, and when to make payments can assist businesses in managing their cash flow and in avoiding unnecessary expenses.
The purpose of this guide is to go over the regulations introduced by the CRA regarding installments, including their frequency, methods of calculation, important due date information, etc.
What Are Corporate Tax Instalments?
Corporate tax installment payments are the premature payments that a corporation anticipates having to pay for the year. Unlike the ‘final payment’ that is made all at once, corporations will pay the installment payments during the year.
The installments include the federal corporate income tax and the provincial or territorial corporate income taxes, except for Alberta and Quebec, where the provincial corporate tax falls under another category.
They are different from the final payments or the T2 corporation return. The former covers only part of the expected amount, whereas the latter makes up for the remaining amount due. The T2 tax return indicates the real income, deductible amounts, credits, and corporate taxes owed to date.
If you make all the payments, you still have to submit T2 even if the installments are sufficient.
Who Must Pay Corporate Tax Instalments?
Corporations are generally required to pay tax in monthly or quarterly installments. This applies to many incorporated small businesses as well as larger companies.
However, not every corporation needs to make advance payments. The CRA provides exceptions based on the corporation’s tax history and circumstances.
When You Don’t Have to Pay Instalments
A corporation generally does not need to make instalments in these situations:
- First tax year: Most corporate taxes are exempt from installments during the first tax year after incorporation. Any tax owing must still be paid by the balance-due day.
- Tax payable of $3,000 or less: Instalments are generally not required for the relevant tax category if tax payable is $3,000 or less in either the current or previous tax year.
- Short tax year: Instalments are not required for a tax year shorter than one month, or shorter than one quarter for an eligible small Canadian-controlled private corporation (CCPC).
There are exceptions for certain types of corporate tax, including tax on carved-out income.
New corporations should pay particular attention to their second tax year. Instalments may become due before the first T2 return is filed or its balance is paid. Confirming the tax year-end early helps prevent missed deadlines and payments being allocated to the wrong period.
See the CRA’s corporate instalment requirements for the full rules.
Monthly vs. Quarterly Instalments
Monthly payments are the standard for most corporations. Certain CCPCs can pay quarterly instead, provided they meet the CRA’s eligibility requirements.
Monthly Installments | Quarterly instalments |
Generally available to corporations required to pay instalments | Available only to eligible small CCPCs |
12 payments in a full tax year | 4 payments in a full tax year |
Smaller, more frequent payments | Fewer, larger payments |
Who Qualifies for Quarterly Instalments?
To qualify, a CCPC must meet all applicable conditions:
- It has a perfect compliance history.
- It claimed the small business deduction in the current or previous tax year.
- Its taxable income is $500,000 or less, and its taxable capital employed in Canada is $10 million or less, taking associated corporations into account where required.
A perfect compliance history means the corporation has met relevant CRA filing and payment obligations on time. These include corporate income tax and GST/HST returns, payroll deductions, and required GST/HST and payroll remittances during the relevant 12-month period.
Quarterly eligibility is not permanent. If a corporation stops qualifying during the year, it can generally make its next payment at the end of the current quarter, then begin monthly installments after that quarter.
Check the CRA’s instalment due-date guidance before choosing quarterly payments.
Corporate Tax Instalment Due Dates
Your corporate tax installment due dates depend on the start of your tax year and whether you pay monthly or quarterly.
The first monthly payment is due one month less a day after the tax year begins. For eligible quarterly payers, the first payment is due one quarter less a day after the start of the tax year. Later payments follow the same monthly or quarterly schedule.
Example 1: Calendar-Year Corporation
For a corporation whose tax year runs from January 1 to December 31:
- Monthly: Payments are due on the last day of each month, from January 31 through December 31.
- Quarterly: Payments are due on March 31, June 30, September 30, and December 31.
Example 2: Non-Calendar Tax Year
Consider a corporation whose tax year starts on October 10, 2024, and ends on October 9, 2025.
- Monthly: The first payment is due November 9, 2024, with the final payment due October 9, 2025.
- Quarterly: Payments are due January 9, April 9, July 9, and October 9, 2025.
This is why businesses should calculate deadlines using their actual fiscal year rather than automatically following calendar-year dates.
If a due date falls on a weekend or a public holiday recognized by the CRA, payment is generally considered on time when received on the next business day.
You can check your own schedule through the “Calculate and pay installment payments” service in CRA My Business Account. Authorized representatives can also use Represent a Client.
How to Calculate Corporate Tax Instalments
The CRA offers three calculation options for corporate tax instalments:
- Current-year method: Based on the estimated tax payable for the current year.
- Previous-year method: Based on the tax payable for the previous year.
- Two-year method: Uses the previous two years’ tax amounts to determine the payment schedule.
For a full tax year, the instalment base is generally divided into 12 payments for monthly installments or four payments for quarterly installments. The two-year method can result in smaller payments at the beginning of the year and larger payments later.
A Simple Example
Suppose a corporation’s applicable annual installment base is $24,000 under the previous-year method.
For monthly payments:
$24,000 ÷ 12 = $2,000 per month.
For quarterly payments, if the corporation qualifies:
$24,000 ÷ 4 = $6,000 per quarter.
These figures are illustrative. Actual calculations depend on the applicable tax amounts, credits, and CRA rules.
Using a previous-year-based method can help protect against installment interest when the required payments are made correctly and on time. By contrast, if you base payments on a current-year estimate that turns out to be too low, interest may apply.
If your business income changes considerably during the year, review your estimates and payment schedule. The CRA provides worksheets and an online calculator to help corporations compare the three options.
Balance-Due Day vs. Instalment Due Dates
Instalment due dates determine when advance payments must be made during the tax year. The corporate tax balance-due day is the deadline for paying any remaining tax after the year ends.
For most corporations, the balance-due day is two months after the tax year-end.
Some CCPCs qualify for three months if all three conditions are met:
- The corporation is a CCPC throughout the tax year.
- It claimed the small business deduction in the current or previous tax year.
- Its previous-year taxable income meets the applicable business-limit requirements, including rules for associated corporations where relevant.
The balance-due day is also different from the T2 filing deadline. Most corporations must file their T2 return within six months of the tax year-end, even when the tax payment is due earlier.
For example, a corporation with a December 31 year-end generally has a T2 filing deadline of June 30. Its balance-due day will usually be February 28 or 29, or March 31 if it qualifies for the three-month period.
Instalment Interest and Penalties from the CRA
The CRA applies installment interest when any payments are overdue or inadequate. Interest is compounded daily, and the interest rate is adjusted every three months.
A corporation may be subject to installment charges when its installment interest is higher than $1000. The CRA computes the charge using its own formula, which may lead to variable amounts in different situations.
Timely payments do not always eliminate interest charges. If you use the current-year estimate method and underestimate your tax liability, interest may still apply.
Corporations may be able to reduce interest through the CRA’s offset method. Paying a future installment early or paying more than required can help offset interest on late or insufficient installments for the same tax year, subject to the CRA’s rules.
Check the CRA’s current corporate tax interest and payment guidance for details.
How to Pay Corporate Tax Instalments
Corporations can make payments through participating financial institutions, CRA online payment services, and pre-authorized debit. Recurring payments can also be scheduled through My Business Account or Represent a Client.
The corporation is responsible for ensuring the payment reaches the CRA by the deadline. Keep payment confirmations and check that each payment is credited to the correct corporate tax account and tax year.
The CRA does not send corporate installment reminders, so maintaining your own payment calendar is important.
For payment options and instructions, visit the CRA’s corporate tax payment page.
Common Mistakes to Avoid
A few oversights can make corporate tax payments more expensive than expected. Watch out for these common mistakes:
- Missing second-year instalments: Payments may be due before the first T2 return is filed.
- Using the wrong tax year-end: Incorrect dates can lead to missed deadlines.
- Assuming quarterly eligibility continues: Changes in compliance or other conditions may require monthly payments.
- Underestimating tax payable: An overly optimistic estimate can result in interest.
- Confusing payment deadlines: The balance-due day does not replace installment due dates.
- Failing to reconcile payments: Incorrect account or year allocation can create avoidable problems.
Reviewing your books and upcoming payment dates regularly can help catch these issues before they become costly.
A Note for Corporations in Alberta and Quebec
The CRA’s standard instalment calculations exclude provincial corporate income tax for Alberta and Quebec. Corporations operating in these provinces must check their provincial tax obligations separately.
For businesses in Calgary and elsewhere in Alberta, this means confirming provincial payment requirements with the appropriate Alberta authority rather than assuming the federal CRA schedule covers every tax liability.
You can handle bookkeeping, payroll, and tax filing online through secure systems, which makes communication faster and smoother.
How One Accounting Can Help
Corporate tax planning can be simplified if your finances are organized and your future expenses are included in your financial plan.
One Accounting offers businesses bookkeeping, tax planning, financial reporting, and assistance with T2 corporate tax returns. Their services help business owners stay on top of their estimated tax payments in place before they are due.
Conclusion
Corporate tax payments in Canada enable firms to disperse tax payments throughout the year. Most companies make monthly payments, while qualifying small CCPCs may be allowed to make quarterly payments.
The important aspect is to know the end of your tax year and to select the correct calculation method, as well as keep track of installments paid and when the final payment is due. By maintaining the appropriate records with proper management and tax dealings, you will be able to prevent any missed payments and surprise interest charges.
If you are unsure about the rules governing your corporation, an accountant can help you review your payment schedule.
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