Death and taxes. They’re a reality for all of us. But if you own a start-up or small business, taxes might be a particular nuisance. There’s certainly lots of rules to follow, and they can be difficult to understand (and that’s not counting penalties when you get things wrong). This can be especially true when it comes to paying tax instalments for your corporation in Canada.
We’ve already covered the pros and cons for incorporating your business. Now, we’re turning our attention to the realities for companies that have taken the leap to incorporation.
So here’s everything you need to know about paying tax instalments in Canada.
Tax Instalments For Corporations In Canada
A tax instalment is something you pay throughout the year, so that you’re paying off your tax in chunks instead of all at once. In Canada, there are required tax instalments for individuals – learn more about them here.
Of course, we’re a virtual CFO for startups and small businesses, so today we’re focusing on required corporation tax payments or instalments in Canada.
According to canada.ca (the go-to place for all relevant, up-to-date tax info), “corporations have to pay their taxes in instalments. The balance of tax is paid two or three months after the end of the tax year depending on your balance-due day.”
Let’s break down what this means, remembering that you can use a My Business Account to get specific info about your interest review, transfer of credit, and other relevant concerns.
First, you do not have to pay in instalments if you are a new corporation (ie.: in your first year), if the total of your federal taxes payable is $3000 or less, or for tax years that are shorter than one month.
Otherwise, you need to pay your corporate taxes in monthly instalment payments or quarterly instalment payments. The amount you pay will be calculated based on your federal and provincial or territorial taxes.
Your instalment due date will vary depending on whether you pay monthly or quarterly. Monthly payments are due on the last day of every complete month. Quarterly payments are due on the last day of every complete quarter if you are an eligible small CCPC (a private corporation controlled by Canadian residents).
Your first payment will be due one month or one quarter minus one day from the starting day of your tax year. You will receive regular notices from CRA regarding your corporate tax account. Be sure to file on time, as penalties apply.
How To Calculate and Pay Your Corporate Tax Instalments
Clear as mud? First, consider using cloud based-accounting software, which can help you get a better handle on all your accounting.
Better yet, couple your cloud-based accounting software with a virtual accounting team that specializes in start-ups and small-to-medium sized businesses.
As your virtual finance team, we handle everything to do with the finance and accounting of your business, which of course includes tax compliance.