Corporate Tax Instalments in Ontario: When You Have to Pay Before You File
Most new corporations are caught off guard by this: you can owe CRA money on income you have not filed a return for yet. Corporate tax instalments require you to pay tax throughout the year, based on estimates, well before your T2 is due. Missing them is one of the most common and most avoidable costs we see incorporated professionals run into.
The $3,000 Threshold
You are required to pay your corporate tax by instalments if your net tax owing is more than $3,000 in the current year, and it was also more than $3,000 in either of the previous two years. If both conditions are met, instalments are mandatory, not optional. Most profitable incorporated professionals cross this threshold in their first or second year of real income.
Monthly vs. Quarterly: Which One Applies to You
Most corporations pay monthly instalments, due on the last day of each month of the tax year.
Some small CCPCs qualify for quarterly instalments instead, due on the last day of each quarter. To qualify, generally:
- The corporation has a perfect compliance history with CRA over the preceding 12 months
- It claims the small business deduction, with taxable income at or under the $500,000 business limit
- Taxable capital employed in Canada, combined with any associated corporations, is under $10 million
If you meet these criteria, quarterly instalments are a meaningful cash flow advantage over paying monthly.
How CRA Calculates What You Owe
There are three accepted methods for calculating instalment amounts: base it on your current year's estimated tax, base it on last year's actual tax, or use the amount CRA calculates for you and sends as an instalment reminder. The CRA-calculated method is the safest option if your income is unpredictable, because it protects you from instalment interest even if your estimate would have been too low.
What Happens If You Miss or Underpay
If your instalments do not add up to what you actually owed, CRA charges instalment interest on the shortfall at the prescribed rate, currently 9% annually, calculated from the date each instalment was due. This is separate from and in addition to any interest on your final balance owing. For a corporation with meaningful profit, underpaid instalments across a full year can add up to a real, avoidable cost.
The Practical Fix
If you are approaching or past your first profitable year, this is worth a direct conversation with your accountant before your next instalment is due, not after CRA sends a notice. Reviewing your projected income partway through the year and adjusting instalments accordingly is a normal part of ongoing tax planning, and it is exactly the kind of thing that gets missed when your accountant only hears from you at filing time.