A Canadian corporation may have to pay income tax during its fiscal year through instalments. For a seasonal Amazon or Shopify company, those payments can arrive while cash is committed to inventory, advertising, and freight. Treating instalments as a year-end problem can therefore create a cash shortfall even when the company is profitable.
Determine whether instalments are required
The requirement depends on the corporation’s tax payable and the applicable federal and provincial rules. The CRA provides the current threshold and calculation methods in its corporation instalment requirements.
Do not assume that a CRA reminder is a forecast of the current year’s final tax. Reminder amounts are commonly based on prior information. A fast-growing company may need more. A company with lower current taxable income may be able to use a current-year method, but underpaying can lead to instalment interest.
Know the payment rhythm
Corporations that must pay instalments generally pay monthly, although some eligible Canadian-controlled private corporations may qualify for quarterly payments. The CRA’s instalment date guidance explains the timing and quarterly eligibility conditions.
The balance of corporate tax also has a payment deadline that is earlier than the return filing deadline. The CRA summarizes those rules on its corporation payments page. Filing six months after year-end does not mean all tax can wait six months.
Connect instalments to the current forecast
A practical quarterly review should:
- close the books through the most recent month;
- reconcile platform activity and update inventory and cost of goods sold;
- estimate full-year accounting income;
- identify likely tax adjustments and available corporate balances;
- calculate expected federal and provincial tax;
- compare the estimate with instalments already paid; and
- place the remaining expected payments into the cash forecast.
The calculation should be refreshed after material changes such as a product launch, margin decline, unusual foreign exchange gain, inventory write-down, or owner bonus.
Plan for seasonality
An annual tax estimate can hide the month in which cash is needed. Add every expected instalment and the year-end balance payment to the same rolling forecast used for inventory purchases and advertising.
For a holiday-driven seller, the most important question may be whether tax payments fall before the peak season generates cash. For a seller ordering overseas, deposits and final supplier payments may overlap instalment dates. Seeing both on one timeline makes the trade-off visible before the bank balance becomes tight.
Corporate instalments are one part of the owner’s full tax picture. GST/HST, payroll remittances, and personal instalments may run on different schedules. They should remain separate in the accounting and cash forecast so one balance is not mistaken for cash available to fund another obligation.