Where GST registrants file and remit on an annual basis, the CRA does not wait a year or more for the tax. As is the case with income tax, annual GST filers are required to make a series of four installment payments at regular intervals throughout the year.
Who Has to Pay Instalments?
Not every registrant has to pay quarterly. An individual who is a sole-proprietor or small business owner with a net tax of more than $3,000 owing in the current year and either of the two previous years will have to pay personal tax in installments during the year, rather than in one large payment the next year on April 30.
When you first owe more than $3,000 each year, you will receive a formal letter following the filing of your taxes. The CRA will use the information from your most recent assessed tax return to determine the number of your installments and will send you reminders.
Calculating installment payments
As with corporate tax, taxpayers can calculate quarterly installment payment requirements through two methods: remitting one-quarter of net tax from the previous year; alternatively, basing quarterly payments on the estimate of net tax for the current year if such tax is expected to be less than in the previous year. Where estimates turn out to be incorrect, however, installment interest may result.
There are three ways to calculate the amount of your installment payments:
This method is only suitable when you believe that your income will remain steady, not vary from year to year.
Prior Year Option
This option is suitable when your 2022 income will be about the same as that of 2021, but significantly different from 2020. For example, if you had an excellent year in 2021, but 2020 was much weaker, this would be your best bet.
Current Year Option
If your business is expanding each year and you suspect that your income will be significantly higher than last year, this may be your best option. You can approximate your installment payments by estimating your current year and using the calculation chart for 2022 installment payments. Failing to make full payments by the due dates will result in interest being charged.
How To Make GST/HST Payments?
You can pay your installment directly at your financial institution or use CRA’s online payment services. If you’d prefer to pay by cheque – in fact, any time you want to send CRA a cheque — you need to enclose a remittance voucher. A remittance voucher is a slip that tells CRA’s computers what account and type of payment your installment is for. Without a voucher, your payment may go astray.
To start, you should register a CRA My Business Account so you can access your tax documents online.
This online service is available 24/7 and you can use it for GST/HST returns, payroll, corporation income tax filing, excise duties, and more.
For GST/HST purposes, the CRA MyBusiness Account also offers a nifty installment tax calculator.
You can make GST/HST installment payments via:
1. The CRA’s My Payment electronic service.
2. CRA’s My Business Account by setting up pre-authorized payments.
3. Your financial institution. For example, I can pay directly from my TD Business Account.
4. By Mail: Complete Form RC160, Remittance Voucher and mail it with your cheque. You can order a personalized remittance voucher through My Business Account.
Due dates for GST/HST Instalment Payments
Installment payments are due within one month of the end of each fiscal quarter. Due dates falling on a weekend or public holiday are extended to the next business day.
|Fiscal quarters||Installment due dates|
|January 1 – March 31||April 30|
|April 1 – June 30||July 31|
|July 1 – September 30||October 31|
|October 1 – December 31||January 31|
Annual filers in their first year of filing for the GST/HST return where the first year is less than a full fiscal year must prorate their net tax for the first short filing year, to determine if they need to make quarterly installment payments in the next fiscal year. The proration is determined by dividing the net tax for the first short fiscal year by the number of months in that fiscal year. This provides the approximate monthly net tax. If the estimated amount is $3,000 or more per annum, installment payments are required in the following year.
Failure to make GST/HST installments
Failure to make required installment payments will result in interest charges. Installment interest is calculated beginning the day after the installment was due and ending on the earlier of:
The rate of interest charged is equal to the basic rate plus 4% on the overdue amount. Currently, the applicable rate is 5%.
Installment requirements are a fact of business. They assist in ensuring taxpayers meet their tax filing obligations and help to ease cash flow burdens at the end of the year. However, care should be taken to ensure installment payments are made as required; the interest is expensive and non-deductible.
Frequently Asked Questions
If you collected and remitted $3,000 or more in GST/HST in the previous fiscal year, you are required to make quarterly installments to avoid interest fees or penalties.
When your business revenue is $30,000 or more, the CRA requires you to start collecting and remitting GST/HST.
You pay interest on the outstanding balance starting from when the payment was due. The current prescribed interest rate charged by the CRA is 5%.
They are due by April 30, July 31, October 31, and January 31.
You need to keep an eye on your business finances and the $3,000 threshold. Note that if your first fiscal year is shorter than 12 months, you may need to do some calculations to determine whether you are due for GST/HST installments.
If you have more concerns about the GST/HST installment payments don’t hesitate to contact the Filing Taxes team of professional accountants today at 416-479-8532. Schedule an NTR engagement appointment with us and take the first step towards proper management of your finances.
Disclaimer: The information provided on this page is intended to provide general information. The information does not consider your personal situation and is not intended to be used without consultation from accounting and financial professionals. Salman Rundhawa and Filing Taxes will not be held liable for any problems that arise from the usage of the information provided on this page.