Rules for special situations
There are special rules to follow for calculating your instalment base in the following situations:
Short tax year
Your tax year may be less than 12 months. If so, you have to pay one-twelfth or one-tenth of your tax each complete month in the tax year, depending on which calculation option you choose (see Calculating instalments of Parts I, VI, VI.1, and XIII.1 tax, and provincial and territorial tax for more information on the different options). 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 one month, or in the case of an eligible small CCPC, shorter than one quarter.
The tax you did not pay in instalments is due on your balance-due day.
Corporation C's previous tax year end was January 14, 2023. Its current tax year is cut short as follows:
- Start of tax year: January 15, 2023
- End of tax year: August 31, 2023
Tax owed by instalments under option 2: $300,000.
Seven monthly instalments of $25,000 (1/12 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, two quarterly instalments of $75,000 (1/4 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 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 by the number of days in the tax year. Multiply this figure by the actual tax payable for that year.
365 is not adjusted for the leap 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)]
Fluctuating filing period ending (fiscal period longer than 365 days)
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.
Subsection 249(3) of the Income Tax Act.
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.
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.
See also the example of instalment base – wind-ups.
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.
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.
Forms and publications
- Guide T4012, T2 Corporation – Income Tax Guide
- Guide T7B-CORP, Corporation Instalment Guide
- Income tax folio S1-F5-C1, Related Persons and Dealing at Arm's Length
- Interpretation Bulletin IT-302, Losses of a Corporation – The Effect that Acquisitions of Control, Amalgamations, and Windings-up have on Their Deductibility – After January 15, 1987
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