Stay in CRA's good books with pre-authorized payments

Any business owner who’s been hit by Canada Revenue Agency late-filing penalties and interest charges knows that they can add up quickly. Making regular pre-authorized installments is a great way to ensure that your payments arrive on time – and that you avoid trouble with the CRA.

Canadian businesses can use pre-authorized installments for both corporate income tax and to remit HST payments. This is a great tool for small- and medium-sized companies.

Here’s how it works:

·        You go the CRA website and set up authorization for the agency to withdraw from your account. These work just like direct deposits – on the approved date, the CRA will withdraw the funds from your bank account on file.

·        You set the amount and frequency for the automatic withdrawals.

·        If you later decide that you prefer to send funds to the CRA one payment at a time, you can simply cancel the pre-authorized installments.

Who has to pay installments?

Whether you go the pre-authorized route or make individual payments, there are certain situations where installments are required. See below for details.

Corporate income tax installments

Your business may need to make quarterly installment payments on corporate income tax – if the net tax owing for the current year is more than $3,000. These installments can be calculated based on current fiscal estimates, the previous year’s amount owing, or a year previous.

If you are having a banner year and expect to owe more corporate income tax, you may wish to increase your installment payments rather than be hit by a big tax bill at the end of the year.

HST Installments: How often should I pay?

Companies collect HST/GST on behalf of the government and remit it on a regular basis. Pre-authorized installments help to ensure that you remit HST on time, avoiding penalties for filing late.

Here’s how it works. The CRA sets reporting periods based on the size of your business. It uses the term “taxable supplies”, which means any sales on which you are required to collect HST or GST. The periods are:

·        Annual: Annual taxable supplies of less than $1.5 million

·        Quarterly: $1.5 million to $6 million

·        Monthly: More than $6 million

Many small businesses will only need to report annually. If your fiscal year end is Dec. 31, you must file and pay by March 31. However, you may choose to file more frequently in order to avoid having to make a large HST payment at the end of the year.

Have a look at the example below.

HST installments: A small business case study

Darcy runs a company that helps businesses with cybersecurity. He has two employees and revenues of $300,000 annually. Last year, he remitted $30,000 in HST after claiming input tax credits for supplies that he purchased for the business.

While Darcy could file and pay annually, he does not want to face a big HST bill at the end of the year. Instead, he signs up for pre-authorized installments. He makes a quarterly payment of $7,500.

At the end of the year, he files his HST report. After deducting his $30,000 in quarterly payments (four times $7,500) and his input tax credits, he is eligible for a refund of $600.

Contact us to learn more about pre-authorized tax installment payments

Scalability can provide more information about pre-authorized installments and help you set them up. Get in touch with us. to learn more.