Understanding Corporate Tax Instalments for Toronto Businesses

For most businesses in Toronto, it is important to understand that managing corporate tax obligations is beyond just tax-filing. Tax instalments are an integral part of tax filing, and a lot of businesses in Toronto tend to overlook them. If you are also in the same boat but now want to understand corporate tax instalments, then this is the perfect article for you.

These are basically advance payments, required by the Canada Revenue Agency (CRA) to ensure that corporations meet their tax obligations gradually through the course of the year. Corporate tax instalments are also aimed at reducing the risk of large lump-sum bills and penalties. It would be best if you get in touch with your accountant to understand these in more detail.

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What Are Corporate Tax Instalments?

Corporate tax instalments are periodic payments made throughout the fiscal year toward a corporation’s expected tax liability. Instead of paying taxes only when filing the return, businesses pay in advance, based on current or prior year tax balances.

This system is designed by the CRA specifically to help corporations manage their cash flow while providing predictable tax revenues to the government.

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Who Needs To Pay Corporate Tax Instalments?

If the total taxes payable (both federal and provincial combined) exceed $3000 for your corporation, in either the current year or any of the two preceding years, then you need to make instalment payments.

For Toronto-based corporations, this threshold includes both CRA federal tax and Ontario corporate income tax.

You can get in touch with our team at Taxccount Canada, who bring years of experience and expertise to help you with risk-free tax filing and understanding corporate tax instalment payments in detail.

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Instalment Frequency – Monthly vs. Quarterly

A lot of people get confused about the instalment frequency. Our accounting specialist will assess your business and provide customized solutions.

Monthly instalments

• The default system requires 12 equal payments throughout the year
• Payments are due by the last day of each month

Quarterly instalments

Certain Canadian-Controlled Private Corporations (CCPCs) may qualify for quarterly payments if –

• They have claimed the Small Business Deduction (SBD)
• Their taxable income is below a prescribed threshold
• They meet specific compliance requirements
• Payments are due by the last day of each quarter

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How Are Corporate Tax Instalments Calculated?

There are 3 methods provided by the CRA to help calculate instalments –

• Current-Year Method: Based on estimated taxes payable for the current fiscal year.
• Prior-Year Method: Based on the previous year’s tax liability.
• Second Prior-Year Method: Based on the tax liability from two years ago.

Tip – Most corporations choose the method that minimizes cash outflow while complying with the rules of the CRA. It would be best if you work in collaboration with your accountant to ensure accurate forecasting and get risk-free tax filing.

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Payment Deadlines and Methods

You can discuss these details with your accounting specialist for hassle-free tax filing –

• Monthly: Payments are due by the end of each month.
• Quarterly: Payments due March 31, June 30, September 30, and December 31 (for calendar-year corporations).

Payment Options: Online banking, CRA’s My Business Account, pre-authorized debit, or at financial institutions.

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Penalties for Missing or Underpaying Corporate Tax Instalments

In case you fail/ miss to pay an instalment, it may result in –

• Interest Charges: Daily compounded interest on overdue amounts.
• Instalment Penalties: If instalment interest exceeds $1,000, the CRA may apply additional penalties.

For corporations in Toronto with significant growth, underestimating instalments can quickly lead to unexpected liabilities and financial strain. Thus, it is recommended that you trust an expert accountant to help you sail through the process of tax filing smoothly.

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Why Tax Instalments Matter?

It is a common misconception that you pay corporate tax instalments only to comply with the rules of the CRA. Many people forget that it is a strategic tool for managing corporate liquidity. Your accountant will tell you that managing your tax instalments ensures –

• You can avoid hefty penalties from the CRA.
• Improved predictability in cash flow management
• Access to accurate year-end tax planning strategies

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Best Practices for Toronto Businesses

Forecast cash flow

To avoid facing the challenges of liquidity, as your accounting specialist to integrate instalments schedules into your financial planning.

Use accounting software

Automate reminders and integrate instalment schedules by CRA for risk-free tax filing.

Reassess regularly

It would be beneficial for rapidly growing Toronto businesses to revisit their instalment calculations during the year to prevent underpayment.

Review eligibility for quarterly payments

CCPCs with access to the Small Business Deduction may ease their cash flow burden with fewer payments.

Get professional help

Taxccount professional can help you with the right instalment method and also ensure that the instalments comply with CRA regulations.

This is general information only and not professional advice. Consult a professional before acting.