Instalment penalties are interest charges the CRA imposes when required tax instalments are paid late, short, or not at all, calculated from the date each instalment was due.
Corporations with federal tax owing above $3,000 are generally required to pay tax in monthly or quarterly instalments throughout the year rather than settling the full balance at filing. Individuals with significant tax owing face a similar quarterly requirement. The CRA does not send reminders. Missing or underpaying an instalment triggers interest at the prescribed rate, compounded daily, from the date it was due.
The instalment amount can be based on last year’s tax, the current year’s estimated tax, or an averaging method. Choosing the wrong base, typically using last year’s income in a down year, can lead to unnecessary prepayments without any corresponding benefit. The optimal instalment strategy depends on income variability and cash flow timing.
See also: T2 Corporate Tax Return · Tax Planning · Fiscal YearInstalment planning is a cash flow management decision with a compliance dimension. See how Wefinx approaches tax planning.