Annual GST filers are required to make four installment payments at regular intervals throughout the year, similar to income tax payments. The Canada Revenue Agency (CRA) does not wait a year or more for the tax from installment payments for GST/HST registrants who file and remit on an annual basis.
Instalment Payments for GST Registrants in Canada
Who Needs to Pay Instalments for GST in Canada?
Not all GST registrants are required to pay instalments. However, sole proprietors or small business owners who owe more than $3,000 in net tax for the current year and the previous two years are required to make quarterly personal tax payments throughout the year rather than a single payment the following year on April 30th.
Once you owe more than $3,000 annually, you will receive an official letter after filing your taxes. The CRA will use the information from your most recently assessed tax return to determine the number of instalments and send you reminders.
Methods to Calculate Quarterly Installment Payments for Taxes in Canada
There are three methods for calculating the amount of your quarterly installment payments for taxes in Canada, including the no-calculation option, prior year option, and current year option.
The first option, the no-calculation option, is suitable if your income is expected to remain steady and not vary from year to year. This method assumes that your income will be the same as the previous year, and you will pay the same amount in installments as the previous year.
The prior year option is suitable when your income for the current year is expected to be about the same as the previous year, but significantly different from the year before that. For example, if you had a strong income year in 2021, but your income in 2020 was significantly weaker, this option is recommended.
The current year option is suitable if your business is expanding, and your income is expected to be significantly higher than the previous year. This method requires you to estimate your current year’s income and use the calculation chart for 2022 installment payments.
It’s crucial to make full payments by the due dates to avoid any interest charges. If you fail to make full payments by the due dates, interest will be charged on the outstanding balance.
How to Make GST/HST Payments?
If you need to make GST/HST payments, there are several options available to you. You can make your installment payment directly at your financial institution or use the Canada Revenue Agency’s (CRA) online payment services. However, if you prefer to pay by cheque, you need to include a remittance voucher to ensure your payment is properly directed.
To get started, it’s recommended that you register for a CRA My Business Account, which allows you to access your tax documents online at any time. This service is available 24/7 and can be used for various tax filings, including GST/HST returns, payroll, corporation income tax, and excise duties. Additionally, the CRA My Business Account offers a helpful installment tax calculator for GST/HST purposes.
To make GST/HST installment payments, you can use one of the following methods:
- The CRA’s My Payment electronic service.
- The CRA’s My Business Account by setting up pre-authorized payments.
- Your financial institution. For example, you can pay directly from your TD Business Account.
- By mail: Complete Form RC160, Remittance Voucher, and mail it with your cheque. You can order a personalized remittance voucher through My Business Account.
GST/HST Installment Payments for New Registrants
For new registrants who are annual filers and have less than a full fiscal year, they 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. To do this, the net tax for the first short fiscal year is divided by the number of months in that fiscal year to provide the approximate monthly net tax. If the estimated amount is $3,000 or more per annum, installment payments are required in the following year.
Consequences of Failing to Make GST/HST Installments
When a taxpayer fails to make the required installment payments for GST/HST, interest charges will be applied. The interest will begin to accrue the day after the installment was due, and it will continue to accrue until either the overdue installment amount and any accrued interest is paid, or until the net tax owing for the year is due. The interest rate charged is equal to the basic rate plus 4% on the overdue amount, which currently amounts to 5%.
Although installment requirements are designed to help taxpayers meet their tax filing obligations and ease cash flow burdens at the end of the year, it is crucial to make installment payments as required to avoid expensive and non-deductible interest charges.
GST/HST Installments: Am I Required to Pay?
If you’ve collected and remitted $3,000 or more in GST/HST in the previous fiscal year, you must make quarterly installment payments to avoid interest charges or penalties. Failure to pay these installments on time may result in interest charges starting from the day after the installment was due, with an applicable rate of 5%. Therefore, it’s important to ensure that you meet your installment payment obligations to avoid financial penalties.
The CRA mandates that you begin collecting and remitting GST/HST when your business revenue reaches $30,000 or more.
It is important to monitor your business finances and ensure that you stay aware of the $3,000 threshold for GST/HST installments. In case your first fiscal year is less than a full year, you may need to perform some calculations to determine whether you are required to make GST/HST installment payments.