Situations that may affect your instalment calculations
Certain events in your business or variations from a standard tax year may require different instalment calculations.
Some events may also affect your payment due dates.
Refer to: Situations that may change your balance-due day
If your estimated tax payable or credits change during the year
You can change the amount of instalments you are paying during the year anytime by recalculating your instalments according to your new estimate and adjusting your remaining payments accordingly.
Refer to: Changing instalment amounts
Changing from quarterly to monthly instalments mid-year
Should a corporation no longer be eligible for quarterly instalments, it will need to start making monthly instalments starting the month after the next quarterly instalment payment is due.
Here is the formula to calculate remaining monthly instalment payments:
The estimated tax payable for the current year, minus the total of all instalment payments due quarterly while eligible, divided by the number of months remaining in the tax year.
Example: Changing from quarterly to monthly instalments mid-year
Corporation B has a December 31 year-end and an estimated tax payable for the current year of $120,000, and makes quarterly payments every year.
To calculate the payment amount, you divide by the amount of payments.
Calculation: $120,000 ÷ 4 = $30,000
Corporation B ceases to be compliant on May 31, 2024. It is allowed to pay its next instalment due at the end of the current quarter, which is June 30, 2024. Corporation B will have to begin to pay monthly instalments starting on July 31, 2024.
The first 2 instalment payments of $30,000 are due quarterly on March 31 and June 30, 2024.
The number of months remaining in the tax year after June 30, 2024, is 6.
Once again, the formula to calculate remaining monthly instalment payments:
Estimated tax payable for the current year minus the total of all instalment payments due quarterly while eligible, divided by the number of months remaining in the tax year.
Calculation: [$120,000 − ($30,000 × 2)] ÷ 6 = $10,000
Therefore, 6 monthly instalment payments of $10,000 are due on July 31, August 31, September 30, October 31, November 30, and December 31, 2024.
You can also base this calculation on the first instalment base; however, you have to add to your monthly payments any estimated Part VI and XIII.1 tax payable for the current year, divided by the number of months remaining in the tax year. In general, the first instalment base is the previous year's tax payable, and the second instalment base is the tax payable for the second preceding year [Regulation 5301].
Current or previous tax year was shorter than 12 months
For the current year:
Your tax year may be less than 12 months. If so, you have to pay one twelfth (1/12) or one tenth (1/10) of your tax each complete month in the tax year, depending on which calculation option you choose.
For information on the different options, refer to: calculate corporate income tax (federal and provincial).
If you are an eligible small Canadian-controlled private corporation (CCPC), you have to pay one quarter or one third of your tax each complete quarter in the tax year.
You do not have to make an instalment payment for a tax year that is shorter than 1 month, or in the case of an eligible small CCPC, shorter than 1 quarter.
The tax you did not pay in instalments is due on your balance-due day.
Example: Short current tax year
Corporation C's previous tax year end was January 14, 2024. Its current tax year is cut short as follows:
- Start of tax year: January 15, 2024
- End of tax year: August 31, 2024
Tax owed by instalments under option 2: $300,000.
7 monthly instalments of $25,000 (one twelfth of $300,000) each must be paid on February 14, March 14, April 14, May 14, June 14, July 14, and August 14.
If the actual tax for the year is $400,000, the remaining $225,000 is due by the balance-due day.
For an eligible small CCPC, 2 quarterly instalments of $75,000 (one quarter of $300,000) each must be paid on April 14 and July 14.
If the actual tax for the year is $400,000, the remaining $250,000 is due by the balance-due day.
For the previous year:
For option 2 or 3, when a previous tax year is less than 12 months, the tax payable for that year is adjusted to a 12-month equivalent [Regulation 5301(1)]. This is called the adjusted base.
To calculate the adjusted base, divide 365 (not adjusted for the leap year) by the number of days in the tax year. Multiply this figure by the actual tax payable for that year.
For option 2 or 3, when a previous tax year is less than 183 days, the adjusted base is whichever of the following amounts is greater:
- The adjusted base for that tax year
- The adjusted base for the next previous tax year of more than 182 days [Regulation 5301(3)]
Tax year longer than 365 days (fluctuating filing period ending)
No change to the fiscal period is considered to occur when a corporation follows the practice of ending its fiscal period on a chosen day of the week that is nearest to a certain day of the year, provided that the resulting period does not exceed 53 weeks.
Reference
Subsection 249(3) of the Income Tax Act.
Amalgamations
When a new corporation is formed by amalgamation, it is treated as a continuation of the predecessor corporations. See Section 87 of the Income Tax Act.
Generally, the instalment base of the new corporation is the total of the predecessor corporations' instalment bases. See Regulation 5301(4) of the Income Tax Regulations.
Example: Instalment base for amalgamations [Regulation 5301(4)]
| - | Start of last tax year | End of last tax year | Tax payable |
|---|---|---|---|
| Corporation A | January 1, 2023 | December 31, 2023 | $4,000 |
| Corporation B | January 1, 2023 | December 31, 2023 | $5,000 |
| Corporation C | January 1, 2023 | December 31, 2023 | $6,000 |
| Total of all corporation base amount (A + B + C) | $15,000 | ||
| - | Start of tax year | End of tax year | Tax payable |
|---|---|---|---|
| Corporation A | January 1, 2022 | December 31, 2022 | $2,000 |
| Corporation B | January 1, 2022 | December 31, 2022 | $2,500 |
| Corporation C | January 1, 2022 | December 31, 2022 | $3,000 |
| Total of all corporation base amount (A + B + C) | $7,500 | ||
Corporations A, B, and C amalgamated on January 1, 2024, to form Corporation ABC.
For its first tax year, ending on December 31, 2024, Corporation ABC estimated its tax payable to be $20,000.
| Estimated tax payable for year ending December 31, 2024 | First instalment base amount Footnote (1a) |
Second instalment base amount Footnote (1b) |
|---|---|---|
| $20,000 | $15,000 |
$7,500 |
For its next tax year, ending on December 31, 2024, Corporation ABC estimated its tax payable to be $25,000.
| Estimated tax payable for year ending December 31, 2025 | First instalment base amount Footnote (2a) |
Second instalment base amount Footnote (2b) |
|---|---|---|
| $25,000Footnote (2c) | $20,000 |
$15,000 |
Wind-ups
When a subsidiary corporation is wound up into a Canadian parent corporation, the parent corporation generally has to include, in addition to its own instalment base, the instalment base of its subsidiary corporation. See subsection 88(1) of the Income Tax Act and Regulation 5301(6) of the Income Tax Regulations.
Example: Instalment base for wind-ups [Regulation 5301(6)]
On July 31, 2024, a subsidiary corporation wound up and dissolved, and all its assets were distributed to its parent corporation.
Note: Although the subsidiary must file a return for the tax year that includes January 1, 2024, to July 31, 2024, the tax assessed for this period will not be part of the instalment base in any year for the parent corporation.
| Tax year-end | Tax payable (parent) | Tax payable (subsidiary) |
|---|---|---|
| December 31, 2022 | $14,000 | $5,000 |
| December 31, 2023 | $12,000 | $6,000 |
| December 31, 2024 Footnote (3a) | $20,000 | N/A |
For Regulation 5301(6), the instalment base year amounts for the parent corporation's tax year ending December 31, 2024, would be:
| Tax year-end December 31, 2024 |
First instalment base amount |
Second instalment base amount |
|---|---|---|
| $20,000 | $12,000 | $14,000 |
7 instalment payments of $1,000 each ($12,000 ÷ 12) are due up to July 31, 2024.
| Tax year-end December 31, 2024 |
First instalment base amount Footnote (4a) |
Second instalment base amount Footnote (4b) |
|---|---|---|
| $20,000 | 12,000 + 6,000 = $18,000 |
14,000 + 5,000 = $19,000 |
5 instalment payments of $1,500 each ($18,000 ÷ 12) are due up to December 31, 2024.
For Regulation 5301(6), the instalment base year amounts for the parent's tax year ending December 31, 2025 would be:
| Tax year-end December 31, 2025 |
First instalment base amount Footnote (5a) |
Second instalment base amount Footnote (5b) |
|---|---|---|
| $26,000 Footnote (5c) | 20,000 + [(6,000 × 7) ÷ 12)] = $23,500 |
12,000 + 6,000 = $18,000 |
Transfers or rollovers
There are situations where, in a transaction to which subsection 85(1), 85(2), or 142.7(3) of the Income Tax Act applies, a corporation receives all or substantially all (generally 90% or more) of the property of another corporation that it does not deal with at arm's length.
In this case, the corporation has to include, in addition to its own instalment base, the instalment base of the other corporation. See Regulation 5301(8) of the Income Tax Regulations.
Example: Instalment base for transfers or rollovers [Regulation 5301(8)]
On October 31, 2023, a corporation (transferor) disposed of all its property through a section 85 rollover to another corporation with which it was not dealing with at arm's length (transferee).
Note: Although the transferor may have an income tax liability for its tax year that includes the period of July 1, 2023, to October 31, 2023, in which all or substantially all of its property has been disposed of, the actual tax assessed for that year will not be part of the transferee's instalment base in any year.
| Tax year-end | Tax payable (transferee) | Tax payable (transferor) |
|---|---|---|
| June 30, 2022 | $14,000 | $5,000 |
| June 30, 2023 | $12,000 | $6,000 |
| June 30, 2024 Footnote (6a) | $20,000 | N/A |
For Regulation 5301(8), the instalment base year amounts for the transferee's tax year ending June 30, 2024, would be:
| Tax year-end June 30, 2024 |
First instalment base amount |
Second instalment base amount |
|---|---|---|
| $20,000 | $12,000 | $14,000 |
4 instalment payments of $1,000 each ($12,000 ÷ 12) are due up to October 31, 2023.
| Tax year-end June 30, 2024 |
First instalment base amount Footnote (7a) |
Second instalment base amount Footnote (7b) |
|---|---|---|
| $20,000 | 12,000 + 6,000 = $18,000 |
14,000 + 5,000 = $19,000 |
8 instalment payments of $1,500 each ($18,000 ÷ 12) are due up to June 30, 2024.
For Regulation 5301(8), the instalment base year amounts for the transferee's tax year ending June 30, 2025, would be:
| Tax year-end June 30, 2025 |
First instalment base amount Footnote (8a) |
Second instalment base amount Footnote (8b) |
|---|---|---|
| $27,000 Footnote (8c) | 20,000 + [(6,000 × 4) ÷ 12] = $22,000 |
12,000 + 6,000 = $18,000 |
Change of control
If there is a change of control of a corporation under subsection 249(4) of the Income Tax Act, the corporation continues to exist as it was before for instalment purposes.
When there is a short tax year, you must follow the special rules for short tax years.
Specified future tax consequences
For instalment calculations, the tax payable for a tax year is the total tax payable for the year before taking into consideration the specified future tax consequences for the year [Regulation 5301(10)].
Specified future tax consequences are defined in subsection 248(1) of the Income Tax Act. These include things like loss carryback, foreign tax credit adjustments, and flow-through share renunciation.
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