CRA Corporate Tax Installments: How It Works

April 11, 2025

Gurdeep Sangha

Wondering what are the best tax benefits for small business owners? Here’s what you should know about tax benefits.

Managing cash flow is a critical aspect of running a successful business in Canada. One significant financial obligation that requires careful planning is corporate tax installments.

Failing to understand and properly manage these payments can lead to unnecessary penalties, interest charges, and financial strain on your business operations.

Corporate tax installments are advance payments of income tax that the Canada Revenue Agency (CRA) requires businesses to make throughout their fiscal year.

Rather than waiting until tax filing time to pay your entire corporate tax bill, these installments spread the tax burden throughout the year, ensuring a steady flow of revenue for the government while helping businesses manage their tax obligations more effectively.

This guide is designed for Canadian business owners, financial controllers, accountants, and anyone responsible for managing corporate finances.

Whether you’re running a small business just crossing the threshold into installment territory or managing a larger corporation with established payment processes, understanding the nuances of CRA corporate tax installments is essential for financial compliance and planning.

In this comprehensive article, we’ll explore who needs to pay installments, how to calculate them, payment deadlines, available payment methods, and strategies to optimize your approach while avoiding costly penalties.

Understanding Your Obligations: CRA Corporate Tax Installments

Who Needs to Pay Corporate Tax Installments?

Not every Canadian corporation is required to make installment payments. Generally, your corporation must make monthly or quarterly tax installments if:

Your corporation’s total taxes payable (federal, provincial, or territorial) was more than $3,000 in either the current fiscal year or the previous fiscal year; AND
Your corporation’s fiscal year is more than one month long

If your corporation is a Canadian-controlled private corporation (CCPC) claiming the small business deduction, you may qualify for quarterly installments instead of monthly payments if:

Your corporation’s taxable income (combined with any associated corporations) for either the current or previous fiscal year doesn’t exceed the small business limit
Your corporation has a perfect compliance history with no outstanding tax returns or amounts owing
Your corporation’s total taxes payable for either the current or previous fiscal year doesn’t exceed $3,000

Certain corporations are exempt from making installment payments, including:

New corporations in their first fiscal year
Corporations with a tax liability of $3,000 or less
Non-resident corporations with no permanent establishment in Canada

Calculating Your Installment Payments

The CRA provides three methods for calculating corporate tax installments. You can choose the method that works best for your business situation, but it’s always advisable to select the one that minimizes both your payments and risk of underpayment penalties.

Calculating Using the Prior Year Method

This is often the simplest approach, especially for businesses with relatively stable income. Under this method:

Take your corporation’s total tax payable from the previous fiscal year
Divide by 12 for monthly installments or by 4 for quarterly installments
Pay the resulting amount by each due date

Example: If your corporation’s total tax payable for the previous fiscal year was $48,000, your monthly installments would be $4,000 ($48,000 ÷ 12) or quarterly installments of $12,000 ($48,000 ÷ 4).

Calculating Using the No-Calculation Method

This hybrid approach allows for smaller payments in the first two months of each quarter:

For the first two months of each quarter: Base payments on the previous year’s tax liability divided by 12
For the third month of each quarter: Pay the remaining amount needed to total the current year’s estimated tax for the quarter

This method can help with cash flow management but requires more calculation and tracking.

Key Dates and Deadlines

Understanding when your installments are due is crucial for avoiding penalties and interest charges.

Monthly Installment Schedules

For corporations required to make monthly installments, payments are due on the last day of each month. For fiscal years that don’t align with the calendar year, the installment due dates adjust accordingly.

Example: If your corporation’s fiscal year runs from April 1 to March 31, your first installment for the fiscal year is due on April 30, with subsequent installments due on the last day of each following month.

Quarterly Installment Schedules

Eligible CCPCs can make quarterly installments, which are due on the following schedule:

First quarter: Due on the last day of the fiscal quarter
Second quarter: Due on the last day of the fiscal quarter
Third quarter: Due on the last day of the fiscal quarter
Fourth quarter: Due on the last day of the fiscal quarter

Example: For a corporation with a calendar fiscal year, quarterly installments would be due on March 31, June 30, September 30, and December 31.

Remember that if a due date falls on a weekend or public holiday, the payment is considered on time if received by the CRA on the next business day.

Payment Methods and CRA Resources

Accepted Payment Methods

The CRA offers several payment options for corporate tax installments:

Online Banking: Most Canadian financial institutions allow you to set up the CRA as a payee for business tax payments. Ensure you use the correct payee name (typically “CRA (tax amount) – Current year”) and your corporation’s 15-digit Business Number as the account number.
Wire Transfers: For larger payments or payments from outside Canada, wire transfers are available. The CRA provides specific instructions and account information for international wire transfers.
Payments at Financial Institutions: You can make payments in person at any Canadian financial institution by presenting a completed RC160 payment voucher along with your payment.
CRA My Payment Service: This online service allows businesses to make payments directly to the CRA using debit cards or online banking.
Pre-authorized Debit (PAD): You can set up automatic payments through your CRA My Business Account.

Utilizing CRA My Business Account

The CRA My Business Account portal provides a convenient way to manage your corporation’s tax obligations:

View installment balances and payment history
Calculate required installment amounts
Make payments directly or set up pre-authorized debits
Update banking information
Download statements of account

To access these features, register for CRA My Business Account through the CRA website. Authentication may require an authorization code mailed to your business address.

CRA Resources and Tools

CRA Publications Related to Corporate Tax Installments

T7B Corp – Corporation Installment Guide
RC4022 – General Information for GST/HST Registrants (includes information on installments)
IC84-1 – Revision of Corporate Installment Payments

How to Contact CRA for Corporate Tax Installment Assistance

Business Enquiries Line: 1-800-959-5525
For technical support with My Business Account: 1-800-959-5525
International tax services office: 1-855-284-5946

Penalties and Interest

Consequences of Late or Insufficient Payments

The CRA imposes interest charges and potential penalties on late or insufficient installment payments:

Interest charges: Calculated daily at the prescribed rate (CRA base rate plus 4%) on any amount that should have been paid but wasn’t
Installment penalty: May apply if your installment payments are late or insufficient by more than $1,000

The installment interest is compounded daily and is not tax-deductible, making it particularly costly for businesses.

How Penalties Are Calculated

The installment penalty is calculated using a complex formula that essentially charges you higher interest on significant underpayments. The penalty is the higher of:

Interest calculated on each late or deficient installment amount
Interest calculated on the average deficiency throughout the year

Avoiding Penalties

To minimize the risk of penalties and interest charges:

Set up calendar reminders for all installment due dates
Consider using the Prior Year Method if your income fluctuates, as it provides more certainty
Set aside funds specifically for tax installments in a separate account
Consider slightly overpaying installments if cash flow allows
Use CRA My Business Account to track payment history and upcoming obligations

Requesting Relief from Penalties and Interest

n extraordinary circumstances, the CRA may provide relief from penalties and interest through the Taxpayer Relief Program. Situations that might qualify include:

Natural disasters or other extraordinary circumstances
Serious illness or accident
CRA processing delays or errors
Financial hardship or inability to pay

To request relief, submit Form RC4288 (Request for Taxpayer Relief) along with supporting documentation explaining your circumstances.

Optimizing Your Tax Installment Strategy

Budgeting and Forecasting

Effective tax installment management begins with accurate financial forecasting:

Implement quarterly or monthly financial forecasting processes
Use accounting software that provides tax liability estimates based on current financial data
Review prior years’ tax returns to identify seasonal patterns in income and expenses
Consider the impact of major business changes (expansions, new product lines, etc.) on your tax liability

Working with a Tax Professional

A qualified tax professional can provide significant value in managing corporate tax installments:

Help determine the most advantageous calculation method for your specific situation
Provide guidance on tax planning strategies that might reduce your overall tax burden
Ensure compliance with all CRA requirements and deadlines
Assist with cash flow management strategies to accommodate installment payments
Help resolve any issues that arise with the CRA regarding installments

Record Keeping Best Practices

Maintaining comprehensive records is essential for effective tax installment management:

Keep copies of all installment payment confirmations
Maintain a calendar or spreadsheet tracking all payment dates and amounts
Document the calculation method used for each fiscal year
Retain statements of account from the CRA
Keep records of any communications with the CRA regarding installments

What triggers installment payments for CRA?

Installment payments for the Canada Revenue Agency (CRA) are triggered when you owe a certain amount of tax that isn’t deducted at source (like from a paycheck). Specifically, the CRA may require you to pay your taxes in installments if:

You Owe More Than $3,000 in Tax ($1,800 in Quebec)

You may need to make installment payments if:

Your net tax owing is more than $3,000 in the current year and either of the two previous years.
(Or more than $1,800 if you live in Quebec.)

This usually applies to:

Self-employed individuals
Rental property owners
Investors with capital gains or dividend income
Individuals with multiple income sources where not enough tax is withheld
Retirees with large RRSP withdrawals or pension income without sufficient withholding

How You Know

CRA usually sends an Installment Reminder Notice in February and August if they expect you to pay.

Installment Due Dates

Installments are generally due quarterly:

March 15
June 15
September 15
December 15

What to Do If You're Unsure About Your CRA Corporate Tax Installments?

If you’re unsure whether you need to make installments, you can check CRA’s My Account or talk to a tax professional at Sansar Solutions. Paying late or skipping can lead to interest and penalties, even if you pay your total tax by April 30.

What's The Best Way To Keep Up With CRA Corporate Tax Payments?

Understanding and managing CRA corporate tax installments is a fundamental aspect of running a financially sound business in Canada.

You can avoid costly penalties while optimizing your company’s cash flow by correctly calculating your obligations, adhering to payment deadlines, and implementing proactive financial management strategies.

Remember that each business situation is unique, and what works for one corporation may not be ideal for another. Regularly review your installment strategy as your business grows and changes, and don’t hesitate to seek professional advice when needed.

Take advantage of the CRA’s online tools and resources, particularly the My Business Account portal, to streamline your tax management processes.

With proper planning and attention to detail, corporate tax installments can become a manageable part of your business’s financial routine rather than a source of stress and unexpected costs.

For the most current information regarding corporate tax installments, always refer to the CRA’s official publications or consult with a qualified tax professional who can provide guidance tailored to your specific business circumstances.

Frequently Asked Questions About CRA Corporate Tax Installments

What happens if my business has a loss?

If your business anticipates a loss in the current fiscal year, you may be able to reduce or eliminate installment payments. However, you should base this decision on a solid estimate of your annual results. If your estimate is incorrect and you end up owing tax, you could face interest charges on deficient installments. Consider consulting with a tax professional before skipping installments.

However, it’s important to ensure that the expenses are legitimate business expenses and are incurred with the intention of earning income. The Canada Revenue Agency may scrutinize claims closely, especially if losses are reported over multiple years, to ensure the business activity is genuine and not a personal hobby.

Can I change my installment payment method?

Yes, you can choose any of the three methods for calculating installments for each fiscal year. You don’t need to notify the CRA of your chosen method – they will determine which method would have resulted in the lowest payments when assessing whether interest or penalties apply.

The aim is to help small businesses retain more earnings for reinvestment, growth, and job creation. Provinces and territories may offer additional small business deductions, further lowering the tax burden. Eligibility for the SBD requires meeting specific criteria set by the Canada Revenue Agency (CRA).

How does the CRA handle overpayments?

If you overpay your installments, the excess amount will be credited to your account and can be applied against future installments or refunded to you after your annual tax return is processed. The CRA pays credit interest on overpayments, but the rate is lower than the interest charged on underpayments.

What if I miss an installment payment?

If you miss a payment, make the payment as soon as possible to minimize interest charges. Consider catching up by increasing subsequent installments. The CRA calculates interest on the deficient amount from the due date until the date it’s paid.

Are installment payments tax-deductible?

No, installment payments are not tax-deductible expenses. They are advance payments of your corporation’s income tax liability, not an additional expense.