Below are some answers and info related to very common questions I get about tax instalments and Canadian tax deadlines.
TAX INSTALMENTS
What are tax instalments? Tax Instalments are payments made to the CRA throughout the year before a tax return is due/filed. The CRA usually sends out a notice with an instalment payments schedule when a tax Balance Owing amount reaches $3,000 for a filed return (and the Instalments would then be payable for the following year). Instalments can be requested for Personal Income Tax, HST or Corporate Income Tax accounts. Once you’re required to make instalment payments, you would generally continue to make them unless you’re sure that you will not owe tax in a given year. You can also choose to make smaller instalments payments than required if you think you will owe less tax than the total instalments calculated (examples below).
How are instalments calculated? Personal and corporate tax instalments are calculated based on a formula using balances from your filed tax returns. They can also be calculated online or via tax software. HST instalments are typically ¼ of the previous year’s tax Balance Owing amount.
What happens if you don’t pay instalments in accordance with the scheduled payments? Interest happens! It accrues from the date they were due if you do in fact owe tax that year. CRA Interest rates are posted here and are subject to change.
Example 1: You owed tax instalments of $8,000 total (in $2,000 quarterly payments) for 2018 but did not make those payments. When you file your 2018 tax return, your amount owing is $10,000, which means those instalments were due during the year and you will get charged instalment interest from the date of each payment that you didn’t make in 2018.
Example 2: You owed tax instalments of $8,000 total (in $2,000 quarterly payments) for 2018 but did not make those payments. When you file your 2018 tax return, you are entitled to a refund of tax or ITCs, therefore no instalment interest is calculated.
Example 3: You owed tax instalments of $8,000 total (in $2,000 quarterly
payments) for 2018 but did not make those payments. When you file your 2018 tax
return, your amount owing is only $2,500, so you will only be charged instalment
interest on that first $2,500 of instalments you didn’t make.
Example 4: You owed tax instalments of $8,000 total (in $2,000 quarterly payments) for 2018 but did not make those payments. Instead, you paid the entire $8,000 amount in January 2019. When you file your 2018 return, your amount owing is $10,000 so you will still be charged instalment interest on the instalments calculated from the date they were due up to the date they were paid.
CRA TAX DEADLINES
Late-filing penalties and interest for all return types: Filing a tax return late results in a penalty of 5% of the balance owing plus an additional 1% for each month late up to a maximum of 12 months,plus interest. Filing on time but paying the tax Balance Owing late results in interest only. If the deadline falls on a weekend, the return is due on the next business day.
Personal tax deadlines: There are actually two deadlines for personal tax returns. A non-self-employed person’s tax return is due on April 30th, and interest starts accruing from that point in time if there is an amount owing (and if instalments weren’t required throughout the year). A self-employed person’s tax return is due on June 15th but if an amount owing is calculated when that return is filed the interest retroactively accrues from April 30th, which is why it’s best to ignore the June extension if you likely owe tax! The self-employed deadline extension of June 15th will also apply to the self-employed person’s spouse even if the spouse is not self-employed but it doesn’t apply to children.
A self-employed person is someone who reports self-employed business or professional income on Form T2125 of their return. An individual who owns an incorporated business and gets a T4 or T5 from their company is not considered self-employed for these purposes.
HST returns annual filing deadlines: For self-employed businesses (with a December 31 year-end) the deadline to remit the HST payment is April 30th but the deadline to file the HST return is June 15th (similar to the personal tax deadlines for self-employed individuals). Incorporated businesses and partnerships filing annually must file and remit their HST by three months after the fiscal year-end of the business.
HST returns filing frequency: The filing frequency of HST returns can be annual, quarterly or monthly. Typically, small businesses file annually, while making instalments during the year and then settle the difference between the total instalments and the actual tax Balance Owing when the return is filed. If you would rather report and pay the actual amount owing each quarter you can switch to quarterly filing, which may be the better option for businesses with a strong accounting system in place and who would rather not make a lump sum payment annually for cash flow purposes. It’s mandatory for businesses with over $1.5 million of revenues to file and remit quarterly, and those with over $6 million in revenues to file and remit monthly.
BONUS HST TIP: when you receive an invoice from a supplier who is charging you HST with their HST number on it, you can confirm that they are actually registered for HST here. This ensures that they aren’t fraudulently “charging HST” without actually being registered ie. simply inflating their prices by 13% without remitting HST back to the CRA – I’ve seen businesses do this in the past!
Corporate tax deadlines: Corporate tax returns are due six months after the year end date, but the tax Balance Owing is due three months after the year-end date.
Disclaimer: all information above is provided by CRA website Canada.ca and is subject to change.