Transcript

Host: Welcome to the segment called Paying GST/HST by instalments, part of the CRA’s GST/HST Information for a New Small Business video.

With me is John Kelly.

Welcome John.

Subject matter expert: Thanks Kathleen.

Host: I understand that some GST/HST registrants have to make instalment payments throughout the year.

Can you start by explaining to me what instalment payments are, and who has to pay them?

Subject matter expert: For GST/HST reporting purposes, an instalment payment is made by annual GST/HST filers and is a partial payment of the total amount of tax payable for the year that is paid quarterly and each instalment is usually equal to one quarter of your net tax from the previous year.

If you’re an annual filer and your net tax for a fiscal year is $3,000 or more, you may have to make quarterly instalment payments throughout the following fiscal year.

If you’re a new registrant and an annual filer, you may have to make quarterly instalment payments during your next fiscal year, even if your net tax during your first year as a registrant is less than $3,000. This could happen if your first year of filing for the GST/HST is less than a full fiscal year.

Host: So if I opened my GST/HST account part way through the year, how do I determine if I have to make instalment payments next year?

Subject matter expert: To determine if you have to make quarterly instalment payments, estimate what your net tax will be for your first full year by prorating your net tax from your short filing year.

Host: How do you prorate net tax?

Subject matter expert: Divide your net tax for the first short fiscal year by the number of days that you were registered in that fiscal year.

Then multiply this amount by 365.

If the estimated amount is $3,000 or more, you need to make instalment payments in the next year.

Host: So let’s say my first year as an annual filer began on May 1^st and ended on December 31^st last year.

My net tax for those 245 days was $2,800.

Do I have to pay instalments this year?

Subject matter expert: Yes.

Ok, your first year was 245 days long, and your net tax was $2,800.

So you divide the net tax of $2,800 by the 245 days you were registered, to give you a total of $11.43 net tax per day.

You then multiply the $11.43 by 365, the number of days in a full year. The resulting amount is $4,172 net tax. Since this is more than the $3,000 that triggers the instalment requirement, you will be required to pay $4,172 in equal quarterly instalments of $1,043 next year.

Host: When do you have to make instalment payments for the GST/HST?

Subject matter expert: Equal quarterly instalment payments are due one month after the end of each of your fiscal quarters.

Host: How do you know how much to pay?

Subject matter expert: Instalment payments are usually equal to 1/4 of your net tax from the previous year.

You can calculate your instalment payments and view their related due dates online.

For more information about the CRA’s online instalment payment calculator, go to MyBusinessAccount on the CRA website. The link is included in the Related links for this segment.

Host: Let’s look at an example of a business with a December 31^st fiscal year-end.

Their net tax for their last fiscal year was $4,000.

They estimate their net tax this year will be $3,200.

What should they pay for instalments?

Subject matter expert: The previous year’s net tax was $4,000, so the CRA would calculate and expect four quarterly instalments of $1,000 each.

However, the corporation can choose to base its instalments on the estimate for this year, which is $3,200. In that case, they would pay $800 every quarter.

The first instalment is due April 30th.

Host: You mentioned that the CRA would calculate and expect quarterly instalments based on the previous year.

What happens if a registrant underestimates their instalments for the year?

Subject matter expert: If the instalment payments you make are equal to one quarter of your net tax from your last fiscal year and you make those payments in full and on time, the CRA will not charge instalment interest, even if your net tax for the year is more than the instalments you made.

However, if the instalment payments you made in the current year are less than the calculated amounts based on the prior year, and the total of all the instalment payments you made is less than the amount of the net tax you actually should have paid, in that case, the CRA will charge instalment interest on the difference.

Watch the segment of this video entitled Avoiding Penalties and Other Consequences for more details.

Host: So if I am required to make instalments will the CRA send out a reminder, telling me how much to pay before the first instalment is due?

Subject matter expert: No, the CRA will not send out a notice, advising you of your instalment obligations.

If you are a GST/HST annual filer, you should keep track of the GST/HST net tax paid throughout your fiscal year. If you’re an annual filer and your net tax for a fiscal year is $3,000 or more, you need to keep in mind that you may have to make quarterly instalment payments throughout the following fiscal year.

The CRA sends a statement of interim payments to annual GST/HST filers every six months.

The statement: shows the instalment payments that have been made; confirms receipt of payment; shows instalment credit balances by period; shows transfer activity in the account; and shows how instalment credits were applied against assessments.

Host: What’s the best way to make instalment payments?

Subject matter expert: You’ve got a number of options, similar to your options discussed in the segment of this video called Filing your returns and remitting the GST/HST.

You can pay through your financial institution either electronically or in person.

You can use the CRA’s My Payment service, by going to www.cra.gc.ca/mypayment.

And finally you can send a cheque by mail to your tax centre.

For more information, go to the CRA webpage on wow to pay instalments. The links are included in the Related links for this segment.

Host: What if I make a payment for the wrong year by mistake?

Subject matter expert: Use My Business Account to transfer a payment or credit from one interim period to another.

For more information, go to the CRA webpage at www.cra.gc.ca/mybusinessaccount. The link is included in the Related links for this segment.

You can even transfer a payment or credit to other accounts within your business number.

While My Business Account is the fastest option, you may also make the request by writing to your tax centre, or calling the CRA Business Enquiries at 1-800-959-5525.

Host: So if I’m a GST/HST registrant whose filing frequency is quarterly or monthly, do I have to pay GST/HST instalments?

Subject matter expert: No. Only annual filers are required to pay GST/HST instalments.

Host: What’s a good resource for information on GST/HST instalments?

Subject matter expert: More information is available in the publication RC4022, General Information for GST/HST Registrants. The link is included in the Related links for this segment.

Host: Thank you John.

This concludes the segment called Paying GST/HST by instalments, part of the CRA’s GST/HST Information for a New Small Business video.

Thank you for watching.