If you are a corporation and you are taxable, you are required to file corporate tax returns annually.
Corporations must remit instalments (prepay corporate taxes), unless they fall under one of the following exceptions:
- You do not have to make instalments in your first year of business. This can be a bit dangerous for businesses that owe tax in the first year as many business owners are spending all available cash on growing their operation. You should consult with a tax professional to determine the appropriate amount to hold back in your company to pay your corporate taxes when they become due.
- If you did not owe more than $3,000 in your current or previous tax year, you are not required to make instalments.
- If your tax year is shorter than one month, you do not need to make tax instalments.
There are two options for calculating instalments:
Companies must remit instalments monthly, unless they meet one of the following criteria to remit quarterly:
- The company has a perfect compliance history, which means that for the last 12 months the company has:
- Remitted all GST, CPP, and EI and other withholdings owing on time.
- Filed its corporate and GST returns on time.
- The company, together with any associated companies, in the current or previous tax years, has:
- Taxable income of $500,000 or less
- Taxable capital employed in Canada of less than $10 million
Paying Corporate Tax
There are a number of ways to make payments to the CRA, including through My Business Account, through your online banking, or via mail. Read about paying your balance of corporate tax here.
- Corporate tax is due to be paid two months after a corporation’s year end. However, for most Canadian-controlled private corporations (CCPCs), the tax due date is extended to three months after year end.
- In all cases, your corporate tax return is due to be filed six months after the corporation’s year end.
- Instalments are always due on the last day of the relevant instalment period.
CRA Corporate Tax Penalties & Interest
CRA Instalment Penalties
If your instalment payments are late or less than the required amount, and your instalment interest charges are more than $1,000, you will have to pay an instalment penalty. The penalty is half of your actual instalment interest less the higher of:
- $1,000, or
- 25% of the amount of interest you would have been charged if you didn’t make instalment payments.
CRA Late Filing Penalty
If you have a balance owing and file your return late, there is a penalty of five per cent of the balance owing, plus an additional one per cent per month late up to a maximum of 12 months.
These penalties increase to 10 per cent, two per cent, and 20 months respectively if you also filed late in any of the three previous years.
Failure To Report Income
You may also have to pay a federal and provincial/territorial penalty if you failed to report income of $500 or more for the latest year and any of the three previous years. See repeated failure to report income penalty.
If you voluntarily report these failures to the CRA, the penalties may be waived under the Voluntary Disclosures Program.
Daily compound interest will be charged on any balance unpaid on the day after the due date. Interest will also be charged on any penalties assessed. See prescribed interest rates.