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Navigating corporate income tax instalments in Canada can be complex, especially for healthcare professionals operating as Canadian-Controlled Private Corporations (CCPCs). This blog post will guide you through the key aspects of corporate income tax instalments, helping you stay compliant and avoid unnecessary penalties.

  • Instalment Requirements: Corporate tax instalments are required for ongoing tax liabilities, with the first year of operations typically exempt.
  • Instalment Calculation Methods: Instalments can be based on the current year’s estimated tax, the previous year’s tax, or the average tax of the last two years.
  • Payment Schedules and Methods: Instalments are due monthly, with various payment options available. Missing payments can result in interest and penalties.

Corporate Income Tax Instalments: An Overview

Corporate income tax instalments are periodic payments that corporations must make to the Canada Revenue Agency (CRA) to cover their tax liabilities throughout the year. These instalments help prevent large tax bills at the end of the fiscal year and ensure a steady flow of revenue for the government.

First Year of Operations

For corporations in their first year of operations, instalments are generally not required. This is because the CRA bases instalment requirements on the corporation’s prior-year tax liability, which would be zero for a new business. However, it is essential for new corporations to manage their cash flow and set aside funds to cover their tax liabilities due at the end of the year.

How Instalments are Calculated

Instalments for corporate income tax are calculated similarly to personal tax instalments. They can be based on:

  1. The estimated tax owing for the current year.
  2. The tax owing from the previous year.
  3. The average tax owing from the two previous years.

Corporations can choose the method that best suits their financial situation. The CRA does not issue instalment reminders for corporations, so it is the responsibility of the corporation to calculate and make the necessary payments.

Requirement to Pay the Amount Set Out

While the CRA provides guidelines on calculating instalments, corporations are not strictly required to pay the exact amounts indicated by these calculations. However, ensuring that sufficient instalments are paid throughout the year is crucial to avoid interest charges and penalties.

Consequences of Failing to Pay Instalments

Failing to pay required instalments or underpaying can result in interest charges and penalties. The interest is compounded daily and starts accumulating from the date the instalment was due. Penalties may apply if the instalment interest exceeds $1,000.

When to Pay Corporate Tax Instalments

Corporate tax instalments must be paid monthly, and each payment is due by the last day of each month. Since the CRA does not issue written requests for corporate income tax instalments, it is up to the Professional Corporation (PC) to ensure that these payments are made on time. We always suggest to clients that payments be initiated on the 25th of each month to permit time for instalment payments to arrive at CRA on time.

The balance of tax payment for Canadian-Controlled Private Corporations (CCPCs) is due three months after the end of their fiscal year.

What is a CCPC?

A Canadian-Controlled Private Corporation (CCPC) is a corporation that is privately held and controlled by Canadian residents. Most professional corporations, such as those operated by doctors, dentists, veterinarians, and other healthcare professionals, fall under this category. Professional Corporations (“PC”) operated by healthcare professionals typically fall under the category of CCPCs, making it essential to understand these tax obligations fully.

Balance of Tax Payment Dates

The balance of tax payment date can differ depending on the type of income earned by the corporation:

  • Active Income: For CCPCs earning active business income, the balance of tax is typically due three months after the end of the fiscal year.
  • Passive Income: For CCPCs earning significant passive income (such as investment income), the balance of tax payment is due two months after the end of the fiscal year.

How Instalment Payments are Applied

Instalment payments are applied against a corporation’s corporate income tax account, which is identified by the corporation’s business number followed by an account number beginning with “RC”. It is important to note that this is distinct from a personal social insurance number.

Payment Methods

Corporate tax instalments can be paid using various methods, including:

  • Online banking.
  • CRA’s My Payment service.
  • Pre-authorized debit.
  • Cheque or money order.

Understanding and managing corporate income tax instalments is crucial for professionals, including doctors, dentists, and veterinarians, to avoid unexpected tax liabilities and penalties. Owning personal use property through a professional corporation can lead to significant tax issues and complexities. If you find yourself in a situation where your corporation owns personal use property, consider extracting the property. This can be done through available tax-free accounts, but if not possible, paying the personal income tax on the extraction might be the most cost-effective solution.

For personalized advice and to avoid these pitfalls, contact Jonathan Tucker, CPA, CA, LPA, at [email protected] or by phone at (905) 601-5659, x101. Jonathan Tucker focuses his time and firm resources on providing tax and business advisory services to healthcare professionals across Canada. Reach out if you have more questions or need further assistance.

Jonathan Tucker