Example of instalment interest and penalty calculation
This is an example of how we calculate instalment interest and penalty using the offset method.
Corporation D has a December 31 year-end and has to make monthly instalment payments of $75,000 starting in January 2023.
Corporation D only makes two instalment payments in the year. It makes one payment of $120,000 on March 12 and a second payment of $150,000 on April 25.
Therefore, when we assess Corporation D's return, we will charge $16,175.00 in instalment interest. We used an underpayment interest rate of 5% compounded daily in the following calculation.
The total instalment interest we will charge Corporation D on its balance-due day of February 29, 2024 is $16,175.00.
Based on Corporation D's instalment interest of $16,175.00, we will assess a penalty of $4,507.82 as follows:
|Minus the greater of: $1,000, and 25% of the instalment interest charged if Corporation D had made no payment at all ($28,637.40 × 25%)||
|Instalment penalty (one-half of the difference)||$4,507.82|
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