When Do You Have to Pay Tax Instalments?

When Instalments Are Required

Your corporation must pay monthly tax instalments if its net tax owing exceeded $3,000 in either the current year or either of the two prior years.

"Net tax owing" = corporate income tax minus tax credits and other deductions.

If your corporation is new or has consistently paid less than $3,000 in total annual tax, instalments are not required. Once you cross the $3,000 threshold, the CRA will typically notify you.

How Instalments Are Calculated

There are three methods — you can use whichever results in the lowest payments:

Method 1: Current year estimate

Pay 1/12 of your estimated current year tax liability each month. Requires you to estimate what you'll owe for the year.

Method 2: Prior year

Pay 1/12 of last year's actual tax bill each month. Simpler — no estimation required. The CRA uses this as a default if they're sending you instalment reminders.

Method 3: Two-year average

Pay based on the average of the two prior years' tax bills. Can reduce instalments if the prior year was unusually high.

Your Mesa CPA advisor selects the optimal method and calculates your instalment schedule at year-end.

When Instalments Are Due

For corporations with a December 31 year-end:

Instalments are due on the last day of each month throughout the corporation's tax year. The final balance (any tax owing above instalments already paid) is due 2 or 3 months after year-end.

What Happens If You Miss an Instalment

The CRA charges instalment interest if:

• You miss a payment, or
• Your instalments are lower than required under the method you chose

Instalment interest is calculated at the CRA's prescribed rate + 4 percentage points. There's no separate penalty for late instalments (only interest), but the interest compounds daily.

If you've paid too much in instalments, the CRA will credit the overpayment against your final tax balance or refund it.

Abnormal Procedures

You received a CRA instalment notice but your business had a bad year.

The CRA's instalment notice is based on prior year data — it doesn't know your current year is worse. You can pay less than what the notice says if you use the current year method (Method 1). Talk to your Mesa CPA advisor — if you underpay based on a lower estimate and your actual tax is higher, you'll owe instalment interest on the shortfall.

You've never paid instalments and just received a first notice.

This usually means your prior year tax bill crossed the $3,000 threshold for the first time. The notice will outline the required amounts and schedule. Your Mesa CPA team will advise whether and how much to pay.

FAQ

What if I just pay a lump sum at year-end instead of instalments?

If instalments are required and you don't pay them, you'll be charged instalment interest on the amounts that should have been paid throughout the year. The interest starts from each missed payment date — it's not just interest on the final balance.

Do instalments apply to GST/HST too?

For GST/HST, you file and pay returns on a monthly, quarterly, or annual schedule (depending on your revenue). This is different from income tax instalments — it's based on the actual tax collected, not an estimate.

Can I pay instalments in one lump sum instead of monthly?

The CRA requires monthly instalments if applicable. However, overpaying early (making a larger payment to cover future months) is allowed — the CRA will apply it forward. Talk to your Mesa CPA team about the best approach for your cash flow.

My corporation is seasonal — can I adjust instalments to match my cash flow?

The CRA's instalment schedule is monthly and doesn't flex for seasonal businesses. The current year method (Method 1) helps — you can pay more in high-revenue months and less in slow ones, as long as your total instalments cover your estimated tax. Your Mesa CPA advisor manages this.