Example

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 2017.

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 $16,101.00 in instalment interest. We used an underpayment interest rate of 5% compounded daily in the following calculation.

Summary of instalment interest for Corporation D

Date 2017	Instalment payment due ($)	Payment received ($)	Balance ($)	Number of days	Interest ($)
January 31	75,000		75,000.00	28	288.20
February 28	75,000		150,288.20	12	247.24
March 12		120,000	30,535.44	19	79.57
March 31	75,000		105,615.01	25	362.29
April 25		150,000	(44,022.70)	5	(30.16)
April 30	75,000		30,947.14	31	131.69
May 31	75,000		106,078.83	30	436.81
June 30	75,000		181,515.64	31	772.41
July 31	75,000		257,288.05	31	1,094.84
August 31	75,000		333,382.89	30	1,372.79
September 30	75,000		409,755.68	31	1,743.64
October 31	75,000		486,499.32	30	2,003.29
November 30	75,000		563,502.61	31	2,397.88
December 31	75,000		640,900.49	59	5,200.51

The total instalment interest we will charge Corporation A on its balance-due day of February 28, 2018 is $16,101.00.

Penalty

Based on Corporation D's instalment interest of $16,101.00, we will assess a penalty of $4,484.12 as follows:

Calculation of instalment penalty for Corporation D

Description	Amount
Instalment interest	$16,101.00
Minus the greater of: $1,000, and 25% of the instalment interest charged if Corporation A had made no payment at all ($28,531.05 × 25%)	$7,132.76
Difference	$8,968.24
Instalment penalty (one-half of the difference)	$4,484.12