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Simplified Installments if You Have the Cash

If you are required to pay the CRA personal or corporate installments for income tax or GST/HST purposes, here is a useful tip that can simplify your payments. It is only worth considering if you have ample cash available and no concerns about running short of cash.

Personal Income tax installments are payable quarterly. Corporate tax installments are payable monthly, or quarterly for certain small Canadian-controlled private corporations. GST/HST installments, if you are a registrant that files GST/HST returns annually, are payable quarterly. Installments are normally based on your previous year’s tax, although if your current year’s tax is lower, you can use that figure instead.

(Personal income tax installments for March and June are based on two years back, so the CRA can send you a statement in February, before you have filed last year’s return, telling you how much you need to pay to ensure that you won’t be charged interest. Your notice for September and December will then tell you how much to pay so that your total installments for the year equal your last year’s tax.)

If you pay an installment late, interest is charged for each day that your payment is late. As of the first quarter of 2023, the interest rate is currently 8% annual rate, compounded daily. This rate is the base commercial T-Bill rate, rounded up to the next 1%, plus 4 percentage points. It is adjusted quarterly.

Normally, refunds owing to you from the CRA bear relatively low interest after 30 days, currently at 6% for individuals and 4% for corporations (compounded daily in each case).

However, if you pay an installment early, the CRA will credit you with “offset interest” or “contra interest”, at the same high rate of interest that applies to your late payments. This “offset interest” is offset only against late installments; it is never paid out to you.

This offset interest is not simply CRA administrative policy. It is legally required by subsection 161(2.2) of the Income Tax Act and, for GST/HST, subsection 280(3) of the Excise Tax Act.

What this means is that, if your total “late payment” interest owing on late installments matches your total “early payment” offset interest, the two will cancel each other out.

As a result, if you make a single payment at the midpoint of all your installment obligations for the year, then provided the interest rate does not go down after mid-year (and at the current 5% it cannot go any lower), you will not be assessed any interest.

This article has been published for general information. You should always contact your trusted advisor for specific guidance pertaining to your individual tax needs. This publication is not a substitute for obtaining personalized advice.

The information contained herein is general in nature and is based on proposals that are subject to change. It is not, and should not be construed as, accounting, legal or tax advice or an opinion provided by Geib & Company to the reader. This material may not be applicable to, or suitable for, specific circumstances or needs and may require consideration of other factors not described herein.

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