Corporation Instalment Guide 2012

T7B Corp.(E) Rev. 11

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Table of Contents

• What's new?
• Is this guide for you?
• Instalment requirements
  • Parts I, VI, VI.1, and XIII.1 tax instalments
  • Part XII.1 - Tax on carved-out income
  • Part XII.3 - Tax on investment income of life insurers
  • Special situations where you do have to pay instalments
  • Special rules
• Due dates
  • Instalment due dates
  • Balance due date
• Statements
  • Account balance and activities
  • Online requests for statements and remittance vouchers
  • Statement of Interim Payments
  • Statement of Arrears
  • Registering an alternate address
• Paying instalments
  • Making a payment
  • Paying on time
  • Payment vouchers
  • Making large payments
  • Owing minimal amounts
• Transfers
  • Transferring instalment payments
• Refunds and overpayments
  • Refunding instalment payments
  • Direct deposit
  • Expecting a large refund
  • Transferring overpayments
• Prepaying reassessments
• Interest and penalties
  • Instalment interest
  • Instalment penalty
  • Arrears interest
  • Refund interest
  • Effect of a carryback
  • Forgiven interest
  • Cancelling small amounts of penalty and interest
  • Cancelling or waiving penalties and interest
• Worksheets
  • Rates of tax
  • Worksheet 1 - Calculating estimated tax payable and tax credits for 2012
  • Worksheet 2 - Calculating monthly instalment payments for 2012
  • Worksheet 3 - Calculating quarterly instalment payments for 2012
• Appendices
  • Appendix 1 - Instalment base - Amalgamations
  • Appendix 2 - Instalment base - Wind-ups
  • Appendix 3 - Instalment base - Transfers or rollovers
  • Appendix 4 - Worksheet 2 - Example 1
  • Appendix 5 - Worksheet 2 - Example 2
  • Appendix 6 - Worksheet 3 - Example
• For more information
  • What if you need help?
  • Forms and publications
  • Non-resident corporation enquiries
  • Online services built for businesses
  • Electronic payments
  • Teletypewriter (TTY) users
  • Our service complaints process
  • Your opinion counts

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What's new?

Is this guide for you?

Generally, corporations have to pay their taxes in instalments. An instalment payment is a partial payment of the total amount of tax payable for the year. The Income Tax Act requires corporations to make instalment payments so that they are treated the same as taxpayers who have tax deducted from their income at source. Since special rules may apply, read the whole guide to determine if you have to make instalment payments.

When we mention parts, sections, subsections, paragraphs, and subparagraphs in this guide, we are referring to the Income Tax Act and Income Tax Regulations of Canada, unless otherwise specified. This guide does not replace the Income Tax Act and its regulations.

The Act authorizes us to charge instalment interest and penalties, and arrears interest, if we do not get the required payments on time.

Note
The terms instalment payment and interim payment are interchangeable. Either term may appear in correspondence and publications you get from us. The term reporting period has the same meaning as the term tax year since both terms describe the period assessed.

Instalment requirements

Corporations generally make monthly or quarterly payments called instalments towards their tax liability under these parts of the Income Tax Act:

• Parts I, VI, VI.1, and XIII.1;
• Part XII.1; and
• Part XII.3.

Parts I, VI, VI.1, and XIII.1 tax instalments

These taxes are added together to determine your instalment requirements:

• Part I - Tax on income;
• Part VI - Tax on capital of financial institutions;
• Part VI.1 - Tax on corporations paying dividends on taxable preferred shares; and
• Part XIII.1 - Additional tax on authorized foreign banks.

Calculating instalments of Parts I, VI, VI.1, and XIII.1 tax

There are three options you can use to calculate the least amount of tax you have to pay in instalments for the current tax year [subsections 157(1) and 157(3)], based on the current year, the previous year, or a combination of the previous year and the year before the previous year.

For all three options, you base the calculation on the total tax you have to pay under Parts I, VI, VI.1, and XIII.1 of the Act and the tax you have to pay to provinces and/or territories (other than Quebec and Alberta).

Unlike other provinces and the territories, Quebec and Alberta administer and collect their own corporation taxes. Corporations that earned taxable income in these provinces pay provincial tax directly to those provinces.

Note
Corporations that have a permanent establishment in Ontario file a harmonized T2 Corporation Income Tax Return with the Canada Revenue Agency (CRA). When calculating your instalment payments, include the following Ontario corporation taxes: corporate income tax, corporate minimum tax, capital tax, and special additional tax on life insurance corporations.

Refundable and non-refundable, federal, provincial, and territorial tax credits are included in the calculation of instalment payments. Use the estimated credits for the current year to calculate your instalment payments under the three options.

We will assess your return using the option that results in the least amount payable by instalments. We will charge interest if you use option 1 and your estimated tax was lower than the year’s actual tax and the tax calculated using option 2 or 3.

Instalment payment calculator

You can use the “Instalment payment calculator” service to calculate instalment payments and view their due dates at:

• Represent a Client, if you are an authorized representative or employee; or
• My Business Account, if you are the business owner.

Monthly instalment payments

You can calculate your monthly instalment payments using one of the following options:

Option 1 - One-twelfth of the estimated tax payable for the current tax year is due each month of the tax year.

Option 2 - One-twelfth of the tax payable from the previous tax year is due each month of the current tax year.

Option 3 - One-twelfth of the tax payable from the year before the previous tax year is due in each of the first two months of the current tax year. One-tenth of the difference between the tax for the previous tax year and the total of the first two payments is due in each of the remaining 10 months of the current tax year.

We provide two worksheets to help you calculate your estimated tax payable and tax credits, as well as your monthly instalment payments:

• Worksheet 1 - Calculating estimated tax payable and tax credits for 2012; and
• Worksheet 2 - Calculating monthly instalment payments for 2012.

These worksheets can also be found on our Forms and Publications page as T2WS1 and T2WS2.

Quarterly instalment payments

Other options for eligible small Canadian-controlled private corporations (CCPCs)

You can calculate the quarterly instalment payments of Parts I and VI.1 for an eligible small CCPC using one of the following options:

Option 1 - One-quarter of the estimated tax payable for the current tax year is due each quarter of the tax year.

Option 2 - One-quarter of the tax payable from the previous tax year is due each quarter of the current tax year.

Option 3 - One-quarter of the tax payable from the year before the previous tax year is due the first quarter of the current tax year. One-third of the difference between the tax for the previous tax year and the first payment is due in each of the remaining three quarters of the current tax year.

We provide Worksheet 3, Calculating quarterly instalment payments for 2012, to help you calculate your quarterly instalment payments. This worksheet can be found on our Forms and Publications page as T2WS3.

Are you eligible to make quarterly instalment payments?

A small CCPC is eligible to make quarterly instalment payments if, at the time the payment is due:

• it has a perfect compliance history;
• it has claimed a small business deduction for the current or previous tax year;
• together with any associated corporations, for the current or previous tax year:
  • it has taxable income of $500,000 or less; and
  • it has taxable capital employed in Canada for the tax year of $10 million or less.

We consider you to have a perfect compliance history if, during the previous 12 months ending at the time your last instalment is due:

• you remitted on time all the amounts required for GST/HST, withholding under subsection 153(1) of the Income Tax Act, Canada Pension Plan contributions and Employment Insurance premiums; and
• you filed on time all returns required under the Income Tax Act or under Part IX of the Excise Tax Act (GST/HST).

Note
“Last instalment is due” means the due date of the previous instalment.

Are you no longer eligible to make quarterly instalments?

When a corporation has paid quarterly instalments and ceases at any time in a tax year to be eligible to pay quarterly instalments, the corporation is still allowed to pay its next instalment due at the end of the current quarter; however, the corporation will have to begin to pay monthly instalments following that quarter.

Part XII.1 - Tax on carved-out income

Part XII.1 of the Income Tax Act applies to the income from carved-out property acquired after July 19, 1985 [section 209]. Carved-out property includes Canadian resource property when certain conditions are met. The tax rate is 45% of this income.

Arrears and refund interest apply to Part XII.1 of the Act.

Reporting Part XII.1 tax

Report the Part XII.1 tax you owe on Form T2096, Part XII.1 Tax Return - Tax on Carved-Out Income. We should receive the return within six months of the end of your tax year.

Calculating instalments of Part XII.1 tax

You have to make instalment payments equal to one-twelfth of the tax payable under Part XII.1 of the Act each month in the tax year. Do not use option 1, 2, or 3 mentioned previously to calculate these instalments.

The remaining tax, if any, is due on or before your balance due date.

Part XII.3 - Tax on investment income of life insurers

Life insurers may have to pay tax under Part XII.3 of the Income Tax Act [section 211.1]. The amount of tax you may have to pay is 15% of your taxable Canadian life investment income for the year.

Arrears and refund interest apply to Part XII.3 of the Act.

Reporting Part XII.3 tax

Report the Part XII.3 tax you owe on Form T2142, Part XII.3 Tax Return - Tax on Investment Income of Life Insurers. We should receive the return no later than six months after the end of your tax year.

Calculating instalments of Part XII.3 tax

Calculate each instalment payment as one-twelfth of the lesser of:

• the estimated Part XII.3 tax payable for the current tax year; and
• the Part XII.3 tax payable for the previous tax year.

Do not use option 1, 2, or 3 mentioned previously to calculate Part XII.3 instalment payments.

Use Form T901, Remittance Voucher, to make your instalment payments under Part XII.3.

The remaining tax, if any, is due on or before your balance due date.

Note
If you use the estimated Part XII.3 tax payable for the current tax year to determine your instalment payments and the actual amount is greater than your estimate, you may not have made the required monthly instalments. If so, you may be charged interest.

Special situations where you do not have to pay instalments

Tax payable of $3,000 or less

You do not have to make instalment payments on your federal taxes if the total of your taxes payable under Parts I, VI, VI.1, and XIII.1, determined before taking into consideration specified future tax consequences prior to the deduction of current-year refundable tax credits for either the current or previous year, is $3,000 or less [subsection 157(2.1)] .

If your Part XII.3 tax is $3,000 or less in the current or previous year, you do not have to make instalment payments on this tax.

Similarly, you do not have to make instalment payments on your provincial or territorial taxes if the total of your provincial or territorial taxes for the current or previous year is $3,000 or less; however, you have to pay your taxes, if any, on your balance due date.

New corporations

Except for Part XII.1 tax, you do not have to make instalment payments for a new corporation until you have started your second year of operation. However, for your first year of operation, you have to pay any tax you owe on or before your balance due date for that tax year.

Note
You may have to start making instalment payments for your second year even before you pay your balance due or file your first return. To help us allocate your first payment to the correct tax year-end, you can contact the CRA to have your tax year-end established before you make the first payment. Otherwise, the system will allocate your first payment to a December 31 year-end.

Your first tax year should start on your incorporation date. If you start your tax year after this date, it may affect your requirement to make instalments later.

Special rules

Short tax years

Your tax year may be less than 12 months. If so, you have to pay one-twelfth or one-tenth of your tax each complete month in the tax year, depending on which calculation option you choose. If you are an eligible small CCPC, you have to pay one-quarter or one-third of your tax each complete quarter in the tax year. See previous sections on how to calculate instalments.

You do not have to make an instalment payment for a tax year that is shorter than one month, or in the case of an eligible small CCPC, shorter than one quarter.

The tax you did not pay in instalments is due on your balance due date.

For option 2 or 3, when a previous tax year is less than 12 months, the tax payable for that year is adjusted to a 12-month equivalent [Regulation 5301(1)]. This is called the adjusted base.

To calculate the adjusted base, divide 365 by the number of days in the tax year. Multiply this figure by the actual tax payable for that year.

Note
365 is not adjusted for the leap year.

For option 2 or 3, when a previous tax year is less than 183 days, the adjusted base is whichever of the following amounts is greater:

• the adjusted base for that tax year; or
• the adjusted base for the next previous tax year of more than 182 days [Regulation 5301(3)].

Fluctuating filing period ending (fiscal period longer than 365 days)

No change to the fiscal period is considered to occur when a corporation follows the practice of ending its fiscal period on a chosen day of the week that is nearest to a certain day of the year provided that the resulting period does not exceed 53 weeks.

Amalgamations

When a new corporation is formed by amalgamation, it is treated as a continuation of the predecessor corporations [section 87]. Generally, the instalment base of the new corporation is the total of the predecessor corporations’ instalment bases [Regulation 5301(4)].

For an example, see Appendix 1.

Wind-ups

When a subsidiary corporation is wound up into a Canadian parent corporation [subsection 88(1)], the parent corporation generally has to include, in addition to its own instalment base, the instalment base of its subsidiary corporation [Regulation 5301(6)].

For an example, see Appendix 2.

Transfers or rollovers

There are situations where, in a transaction to which subsection 85(1), 85(2), or 142.7(3) applies, a corporation receives all or substantially all (generally 90% or more) of the property of another corporation that it does not deal with at arm’s length. In this case, the corporation has to include, in addition to its own instalment base, the instalment base of the other corporation [Regulation 5301(8)].

For an example, see Appendix 3.

Reference
IT-419, Meaning of Arm's Length

Change of control

If there is a change of control of a corporation under subsection 249(4), the corporation continues to exist as it was before for instalment purposes.

When there is a short tax year, see the special rules for short tax years.

Reference
IT-302, Losses of a Corporation - The Effect that Acquisitions of Control, Amalgamations, and Windings-up have on Their Deductibility - After January 15, 1987

Specified future tax consequences

For instalment calculations, the tax payable for a tax year is the total tax payable for the year before taking into consideration the specified future tax consequences for the year [Regulation 5301(10)].

Specified future tax consequences are defined in subsection 248(1). These include things like loss carryback, foreign tax credit adjustments, and flow through share renunciation.

Due dates

Instalment due dates

Instalment payments are due on the last day of every complete month of your tax year [subsection 157(1)], or of every complete quarter [subsection 157(1.1)] if you are an eligible small CCPC. The first payment is due one month or one quarter less a day from the starting day of your tax year. The rest of the payments are due on the same day of each month or of each quarter that follows.

You can view your instalment due dates by using the “Instalment payment calculator” service at:

• Represent a Client, if you are an authorized representative or employee; or
• My Business Account, if you are the business owner.

Balance due date

The balance due date is the date you have to pay the remainder of the tax you owe for the tax year [paragraph 157(1)(b)].

Generally, all corporation taxes (except Part III and Part XII.6) charged under the Income Tax Act are due two months after the end of the tax year.

However, for Parts I, VI, VI.1, and XIII.1 tax, the balance of tax is due three months after the end of the tax year if conditions 1 and 2 that follow are met, as well as condition 3 or 4:

1. the corporation is a Canadian-controlled private corporation (CCPC) throughout the tax year;
2. the corporation claimed the small business deduction for the current or previous tax year;
3. the corporation’s taxable income for the previous tax year does not exceed its business limit for that tax year (if the corporation is not associated with any other corporation during the tax year);
4. the total of the taxable incomes of all the associated corporations for their last tax year ending in the previous calendar year does not exceed the total of their business limits for those tax years (if the corporation is associated with any other corporation during the tax year).

Note
For determining balance due dates, the previous-year taxable income of corporations and associated, subsidiary, and predecessor corporations means taxable income before applying loss carrybacks.

For information on your business limit, see Guide T4012, T2 Corporation - Income Tax Guide.

Amalgamations

The balance due date of a new corporation formed after an amalgamation has taken place will be affected by the new corporation’s taxable income for the previous year. This taxable income is the total of the predecessor corporations’ taxable income for their tax years that ended just before they amalgamated [paragraph 87(2)(oo.1)].

The same rule applies for determining the business limit.

Wind-ups

To determine a parent corporation’s balance due date in its first tax year after it receives the assets of a subsidiary corporation that is winding up [paragraph 88(1)(e.9)], the taxable income for the previous tax year is the total of:

• the parent corporation’s taxable income for that year; and
• the subsidiary corporation’s taxable income for its tax years ending in the calendar year that the parent corporation’s previous tax year ended.

The same rule applies for determining the business limit.

Statements

We issue statements of interim payments on a periodic basis rather than on a transactional basis. This statement shows interim balances carried forward from previous statements, plus the details of any credit activity that occurred during the statement period.

All information is displayed by reporting period. Interim information shows you the balance of instalment payments for each reporting period for which we have not processed a return.

Review the Statement of Interim Payments to make sure we have applied your payments correctly. You can transfer a payment online within a program account and between program accounts of the same nine-digit business number and immediately view the updated balance. For detailed information, see Transferring instalment payments.

Note
Payments are not transferable once your tax return has been assessed.

Keep the statements with your records for future use.

Account balance and activities

At any time, you can view your interim balance, account balance, and transaction using the “Account balance and activities” service. You can also select a customized view to see account transactions for a time period of your choice.

Go to:

• Represent a Client, if you are an authorized representative or employee; or
• My Business Account, if you are the business owner.

Online requests for statements and remittance vouchers

You can make an online request for:

• a customized statement for a time frame of your choice
• copies of notices or statements
• stopping or restarting the mailing of statements, remittance vouchers and/or return envelopes
• additional remittance vouchers

Go to:

• Represent a Client, if you are an authorized representative or employee; or
• My Business Account, if you are the business owner

You can also call 1-800-959-5525.

Statement of Interim Payments

The Statement of Interim Payments is issued every three months for corporations when there has been interim activity. It is used to:

• acknowledge receipt of interim payments;
• show credit movement (transfers in or out);
• show the application of interim credits to assessments;
• provide interim credit balances by period(s); and
• provide the grand total balance across all interim periods.

If you are currently using Form RC160, Interim Payments Remittance Voucher, to make your instalment payments, we will continue to supply additional forms with your statement.

The instalment credits we show on your Statement of Interim Payments for each tax year should agree with your records. If there is a discrepancy between the amount you report on your corporation income tax return and the interim balance in your business account, we will use the amount in your business account for the tax year being assessed when we process the return and we may refund the difference. If you return the refund, we will credit the account using the date that we received it as we would with any other payment.

You can view your instalment payments using the “Account balance and activities” service at:

• Represent a Client, if you are an authorized representative or employee; or
• My Business Account, if you are the business owner.

Statement of Arrears

The customized Statement of Arrears shows all amounts assessed and charged to your account for a particular reporting and/or non-reporting period. It is used to:

• acknowledge receipt of arrears payments;
• show all other transactions posted to assessed and non-reporting periods (for example, (re)assessments and transfers) since the last statement;
• provide processed balances by period; and
• provide the grand total balance across all processed periods.

Registering an alternate address

You can have statements and any Notification of Returned Payment sent to either:

• your program account mailing address; or
• your business’ physical location; or
• the mailing address we have on record for your business number.

You can register an alternate address for a definite or indefinite period, effective immediately or in the future.

Paying instalments

Making a payment

Canada Revenue Agency (CRA) Web site

You may be able to pay online using the CRA's My Payment option. To use My Payment, or to see if your financial institution offers this service, go to My Payment.

Electronically

You may be able to pay by telephone or Internet banking. For information, go to Electronic payments or contact your financial institution to see if they provide these services. Most financial institutions allow you to schedule future-dated payments.

At your financial institution

You can make your payment free of charge at your financial institution in Canada. Present your remittance voucher with your payment to the teller. The teller will return the top part to you as a receipt. You must have an original voucher from the CRA for your financial institution to accept the payment. Photocopies are not accepted.

By mail

You can mail a cheque or money order payable to the Receiver General, along with a completed remittance voucher, to the following address:

Canada Revenue Agency
875 Heron Road
Ottawa ON  K1A 1B1

To help us process your payment correctly, write your full 15-character business number, for example 12345 6789 RC0001, on the back of the cheque or money order. Cheques that are post-dated to the due date are acceptable. Do not send cash in the mail.

Paying on time

We consider you to have made your tax payment on the day that:

• it is received by the CRA; or
• it is processed at any financial institution belonging to the Canadian Payments Association. (Payments made at an Automated Teller Machine (ATM) may not be processed that same day.)

If you mail your payment, we consider you to have made the payment on the day we receive the payment, not on the day you mailed it [subsection 248(7) of the Income Tax Act].

If your payment due date falls on a Saturday, a Sunday, or a public holiday, the payment will be considered received on time if it is received on the first business day after the due date.

Payment vouchers

We have two common personalized remittance vouchers that we may send with your statements or notices:

• Form RC159, Amount Owing Remittance Voucher; and
• Form RC160, Interim Payments Remittance Voucher.

We will send you the appropriate vouchers based on your account status and needs. For additional vouchers, go to:

• Represent a Client, if you are an authorized representative or employee; or
• My Business Account, if you are the business owner.

You can also call 1-800-959-5525.

If you are a new corporation making its first payment or you need to start making instalment payments, you need to order Form RC160, Interim Payments Remittance Voucher, or make an interim payment electronically.

You will not receive Form RC160 for your next instalment payment unless you make the current payment.

Notes
Financial institutions will not accept photocopied remittance vouchers.

If you make a payment with a cheque that your financial institution does not honour, including a payment on which you put a stop payment, we will charge you an administrative fee.

Form RC159, Amount Owing Remittance Voucher

Use Form RC159 to make payments on an existing debt or to make an advance deposit for an anticipated reassessment. When using this payment voucher to make an advance deposit, clearly indicate that it is an advance deposit and include the tax year-end for which the advance deposit is intended.

If you are making an advance deposit for multiple tax years, include a list of the individual tax years for which you are expecting a reassessment and the amount to be held for each year.

Form RC159 can also be used to pay tax under Parts IV, IV.1 and XIV.

Form RC160, Interim Payments Remittance Voucher

Use Form RC160 only to make interim payments for the tax year-end for which we have not processed a return. Form RC160 will show the remittance period-end, that is, your monthly or quarterly instalment payment due date, not the tax year-end.

After all monthly or quarterly interim payments are made for the current year (for example, tax year-end 2012-12-31), you will get the first Form RC160 for the next year (for example, tax year-end 2013-12-31).

If you are making one payment for taxes under different parts of the Income Tax Act, tell us how to allocate each amount to make sure that we credit your accounts correctly.

Making large payments

The Canadian Payments Association sets a maximum value of $25 million for any cheque or other paper-based payment instrument cleared through the banking system. Canadian financial institutions will not accept cheques in excess of $25 million that you drop off or mail to one of our locations.

You are encouraged to make arrangements with your financial institutions for payments of large amounts.

Owing minimal amounts

After we process your return and apply any interest or penalty charges, if the total amount owing at that time is $2 or less, you do not have to pay that amount.

If an amount of $2 or less is owed to you, the amount will not be paid; however it will be applied to any existing liability.

Transfers

Transferring instalment payments

Our transfer policy allows for the movement of excess instalment payments from one account where they are not immediately needed to another account where they are needed to pay an existing balance or required instalment amount.

We will transfer an amount to pay an outstanding balance on a corporation, a GST/HST, or an employer account or to cover a required payment on an employer account. Instalment payments may not be transferred to another period or account as an advance deposit for an anticipated reassessment.

We will consider transfers within the same account or between related accounts of a corporation based on the following guidelines:

• Only an authorized officer of the corporation can ask for a transfer of instalment payments.
• The request has to specify how you want to apply the payments.
• You can transfer funds between tax years in the same account or to another account to pay an existing balance, required instalments or a remittance on your employer account.
• You can transfer either part of a payment or an amount made up of several payments.
• You can ask for more than one transfer during the year.
• You cannot transfer a payment after we have assessed the income tax return for the tax year in question.

You can transfer a payment online from one interim period to another or to pay an amount owing within a program account and between program accounts of the same nine-digit business number and immediately view the updated balance, including interest, if applicable, using the “Account balance and activities” and "Make online requests" services. Go to:

• Represent a Client, if you are an authorized representative or employee; or
• My Business Account, if you are the business owner.

You can also call 1-800-959-5525 or write to your tax centre’s Corporation Services section.

You must make every effort to remit your payments to the correct account. Our transfer policy is meant to provide you with flexibility in reallocating payments when it has been determined that the instalment requirement previously estimated has been overpaid. If you make continuous requests for multiple transfers, we may ask you to explain why in writing.

Notes
For calculating interest, transferred payments keep their original payment date [section 221.2]. We consider any other allocation not to have occurred.

If you do not file an income tax return within three years of the end of the tax year, instalment payments correctly processed to this tax year will not be refunded [subsection 164(1)]. You will not be able to apply these payments to another debt.

Refunds and overpayments

Refunding instalment payments

We will not refund instalment payments until we have assessed the return for the year in question. We will refund any overpayment [subsection 164(1)] provided there is no debt or missing return on your account or any of your related business number accounts.

Note
You must file a return no later than three years after the end of a tax year to get a tax refund.

We will consider refunding a payment posted as an instalment payment that was intended for a third party.

You can request a refund by using one of the following services:

• "Make online requests" service at:
  • Represent a Client, if you are an authorized representative or employee; or
  • My Business Account, if you are the business owner.

You can also call 1-800-959-5525.

We do not pay refund interest on this type of refund.

Direct deposit

Direct deposit offers a safe, convenient, and dependable way of receiving refunds, and it removes the potential loss of credit interest if a cheque is delayed in the mail.

You can start Direct Deposit by completing Form T2-DD, Direct Deposit Request Form for Corporations and sending it to your tax centre.

You can also start direct deposit by completing the "Direct deposit request" at the bottom of the T2 Corporation Income Tax Return. You do not have to complete this area if you already have direct deposit service and the information you gave before has not changed.

Note
You can view direct deposit banking information online using the “View banking information” service in My Business Account.

Your direct deposit request will stay in effect until you change the information or cancel the service. If, for any reason, we cannot deposit a refund into a designated account, we will mail a cheque to you at the address we have on file at the time of the original refund. This does not apply for large refunds of $25 million or greater.

Expecting a large refund

The CRA must transfer all large-value refunds ($25 million or more) through the Large Value Transfer System (LVTS) as required by the Canadian Payments Association (CPA). If you are expecting a large-value refund, you need to be registered for both direct deposit and for the LVTS. Contact your tax centre to begin the registration process.

Note
Form T2-DD Direct Deposit Request Form for Corporations must be completed to register for direct deposit and LVTS.

Transferring overpayments

You may ask to transfer an overpayment when you file your income tax return. This can be done by either entering “2” on line 894 of the return or attaching a letter to the front page of the return.

Note
If a “2” is entered on line 894, the overpayment will first be applied to any outstanding debits on your account and any related business number account, and the rest of the overpayment will be transferred to the next instalment year.

If you enter “2”, we will transfer the residual overpayment to the next year’s instalment account, as well as any applicable refund interest. We will calculate refund interest using the effective interest rate [subsection 164(3)].

We do not transfer the overpayment to a related business number account if your returns are not filed up-to-date.

Prepaying reassessments

If you anticipate a reassessment to a previous tax year, you may choose to make a payment in advance (advance deposit) to reduce interest charges.

To make advance deposits, use Form RC159, Amount Owing Remittance Voucher. To assist us in processing your payment, clearly indicate that it is an advance deposit and include your 15-character business number and the tax year-end for which the advance deposit is intended.

If you are making an advance deposit for multiple tax years, include a list of the individual tax years for which you are expecting a reassessment and the amount to be held for each year. We will hold the advance deposits for this purpose and apply them when we process the reassessments.

Note
If the required information (for example, business number, tax year-end) is not provided, the payment will be refunded.

Advance deposits are reviewed on a regular basis to make sure that there is a risk of reassessment for the period(s) in question and that the amount on deposit is reasonable. During this review process, we may contact you to confirm that the advance deposit is still needed.

There are guidelines limiting the transfer of an advance deposit once it has been assigned to a specific tax year; however, you can transfer an advance deposit to pay:

• an amount owing;
• an instalment for an unassessed tax year on your corporation account;
• an instalment for an unassessed period on your GST/HST account; or
• a remittance due on your employer account.

If you need additional remittance vouchers, see Payment vouchers.

Interest and penalties

We will charge interest if you make late or insufficient payments. This interest is called instalment interest or arrears interest, depending on the debt. We pay applicable refund interest up to the day an overpayment is refunded, repaid, or applied.

The interest rate is based on the average rate of three-month treasury bills sold during the first month of the previous quarter.

Underpayments are rounded to the next higher whole percentage point and raised 4 percentage points. Overpayments are rounded to the next higher whole percentage point.

For a list of prescribed interest rates, go to Interest rates.

You can request an interest review or a Statement of Interest by using one of the following services:

• "Make online requests" service at:
  • Represent a Client, if you are an authorized representative or employee; or
  • My Business Account, if you are the business owner.

You can also view previously issued statements using “View correspondence” service at:

• Represent a Client, if you are an authorized representative or employee; or
• My Business Account, if you are the business owner.

Instalment interest

We will charge interest [subsection 161(2)] according to the prescribed interest rate [Regulation 4301] if you make late or insufficient instalment payments.

We calculate instalment interest compounded daily [subsection 248(11)], according to your instalment requirements for the year [subsection 157(1)].

We use the offset method to calculate instalment interest. This means we give you credit when you prepay or overpay your instalments, and this can reduce or eliminate the interest we charge on late or insufficient payments.

We do not refund any excess of this credit. It is used only when calculating instalment interest charges. See the example that follows.

Note
Credit instalment interest is only calculated on instalment payments from the start of the tax year.

The interest rate on overpayments is lower than on underpayments; however, when we calculate instalment interest using the offset method, the interest rate is the same on prepayments and overpayments as it is on underpayments.

Instalment penalty

When instalment interest is more than $1,000, we may charge an instalment penalty under section 163.1 of the Act.

We calculate the penalty by subtracting from the instalment interest the greater of:

• $1,000; and
• 25% of the instalment interest calculated if no instalment payment had been made for the year.

One-half of the difference is the amount of the penalty.

Arrears interest

We charge arrears interest [subsection 161(1)] according to the prescribed interest rate [Regulation 4301]. Arrears interest is compounded daily on any unpaid balance from the balance due date to the date of payment.

We charge arrears interest [subsection 161(11)] on the instalment penalty from the balance due date to the date it is paid.

Refund interest

We pay refund interest [subsection 164(3)] according to the prescribed interest rate [Regulation 4301]. Refund interest is compounded daily on an overpayment [subsection 164(7)] up to and including the day the overpayment is refunded, repaid, or applied.

When we refund or apply an overpayment, we pay refund interest from whichever of the following dates is later:

• the date of the overpayment;
• the 120th day after the end of the tax year if the return for the year is filed on time; or
• the 30th day after the date the return was filed if it is filed late.

In the case of a repayment of tax in controversy, special provisions apply.

Effect of a carryback

You cannot use a carryback to reduce instalment interest [subsection 161(7)]. We will not adjust instalment interest we previously charged if the amount of the current year credit (for example, dividend refund or capital gains refund) is adjusted because of the carryback.

We will calculate arrears interest, refund interest, or both, for the carryback [subsection 164(5)] from 30 days after whichever of the following dates is later:

• the first day following the tax year in which the carryback originates;
• the date the tax return on which the carryback originates is filed;
• the date a prescribed form, such as Schedule 4, or an amended return is filed; or
• the date a request is made in writing to reassess a year to take into account a loss from another tax year.

Forgiven interest

If you pay an amount quoted on a notice of assessment or reassessment in full within 20 days of that notice, any additional interest from the notice date to the date of payment will not be charged.

Cancelling small amounts of penalty and interest

We will cancel any penalty or interest on an amount owed if the total amount of penalty and interest charged is $25 or less when the tax is paid in full. However, if a future adjustment is processed, this cancellation will be reversed and the account reviewed.

Cancelling or waiving penalties and interest

We may cancel or waive penalties or interest charges when you fail to pay an amount due to circumstances beyond your control. Such circumstances include:

• natural or man-made disasters, such as flood or fire;
• civil disturbances or disruptions in services, such as a postal strike;
• a serious illness or accident; or
• serious emotional or mental distress, such as a death in the immediate family.

We may also cancel or waive penalties or interest charges if such charges arose mainly because of actions of the CRA, such as errors made in the material available to the public, that led you to file returns or make payments based on incorrect information.

In addition, we may cancel or waive penalties or interest charges in certain circumstances based on your inability to pay or if you suffered from financial hardship.

If you are in one of these situations, let us know about the problem and try to pay any amount owing as soon as possible. If you think there is a valid reason for cancelling or waiving penalty or interest charges, send us a letter explaining why you feel the penalty or interest charges should be cancelled or waived. Or, you can use Form RC4288, Request for Taxpayer Relief, to make a request. A copy of this form is available at Forms and publications or by phone at 1-800-959-2221.

For more information on cancelling or waiving penalties and interest, see Information Circular IC07-1, Taxpayer Relief Provisions, and the taxpayer relief provisions at Fairness and Taxpayer Bill of Rights.

You may have paid an amount of interest or a penalty that is later cancelled after you make an application under the CRA’s taxpayer relief provisions. We will calculate interest on this overpayment 30 days after your written request or Form RC4288 was received.

Worksheets

The three worksheets in the middle of this guide will help you determine your instalments of Parts I, VI, VI.1, and XIII.1 and provincial and territorial tax for 2012.

Use Worksheet 1 to estimate your current-year tax payable and your tax credits. Then use these amounts to complete the current-year information area on Worksheet 2 or Worksheet 3.

Use Worksheet 2 to determine your monthly instalments for the year. Use Worksheet 3 to determine your quarterly instalments.

After you have calculated the taxes you owe under Parts I, VI, VI.1, and XIII.1 of the Income Tax Act, and your provincial and territorial tax, enter the amounts in the appropriate columns for options 1, 2, and 3. See Calculating instalments of Parts I, VI, VI.1, and XIII.1 tax for information on the three options.

You can use the option that results in the least amount payable by instalments. Any remaining unpaid tax is payable on or before the balance due date.

You may have instalments to pay for Part XII.1 or Part XII.3 tax. If so, see Calculating instalments of Part XII.1 tax or Calculating instalments of Part XII.3 tax.

Notes
These worksheets are available online at Forms and Publications.

For examples of how to calculate monthly instalment payments with Worksheet 2, see appendices 4 and 5.

For an example of how to calculate quarterly instalment payments with Worksheet 3, see Appendix 6.

Rates of tax

The information in this part will help you estimate your taxes payable and tax credits for 2012 on Worksheet 1.

Federal

The basic rate of Part I tax is 38% of your taxable income.

Provincial or territorial

You have to calculate and pay provincial or territorial income tax in addition to your federal income tax.

Generally, provinces and territories have two rates of income tax - a lower rate and a higher rate.

The lower rate applies to either:

• the income eligible for the federal small business deduction; or
• the income based on limits established by the particular province or territory.

The higher rate applies to all other income. Various deductions, credits, and tax relief may affect the above rates. For more detailed information, see Guide T4012, T2 Corporation - Income Tax Guide, or your provincial or territorial legislation.

Quebec and Alberta do not have corporation tax collection agreements with the federal government. If you have a permanent establishment in these provinces, send your income tax return and your instalment payments for the provincial corporation tax to your province.

If you have a permanent establishment in Ontario, send your harmonized T2 Corporation Income Tax Return and your combined instalment payments for the Ontario and federal corporation tax to the CRA.

Include the following Ontario corporation taxes payable when establishing tax payable or determining the instalment base:

• corporate income tax;
• corporate minimum tax;
• capital tax; and
• special additional tax on life insurance corporations.

Include Nova Scotia tax on large corporations as a provincial tax when establishing tax payable or determining the instalment base for a particular year.

If you have a permanent establishment in more than one province or territory, you have to calculate the taxable income you earned in each province or territory and file Schedule 5, Tax Calculation Supplementary - Corporations. See the schedule or Part IV of the Income Tax Regulations for more details.

The following table shows the 2012 income tax rates for the provinces and territories that have corporation tax collection agreements with the federal government. These rates will be in effect January 1, 2012 and may change during the year. For more information, go to Corporation tax rates.

Province or territory	Tax rate on taxable income eligible for the small business deduction (lower rate)	Tax rate on other taxable income (higher rate)
Newfoundland and Labrador	4%	14%
Nova Scotia	4%	16%
Prince Edward Island	1%	16%
New Brunswick	4.5%	10%
Ontario	4.5%	11.5%*
Manitoba	nil	12%
Saskatchewan	2%	12%
British Columbia	2.5%	10%
Yukon	4%	15%
Northwest Territories	4%	11.5%
Nunavut	4%	12%

*11% effective July 1, 2012

Worksheet 1 - Calculating estimated tax payable and tax credits for 2012

Name of corporation	Business number	Tax year-end
		Year	Month	Day

• Use this worksheet to estimate the current-year tax payable and tax credits.
• Use these estimated amounts to calculate your monthly instalment payments on Worksheet 2 or your quarterly instalment payments on Worksheet 3.
• This worksheet does not have to be filed with your T2 Corporation Income Tax Return.

Estimated taxable income
Calculating the estimated tax payable
Total of the following estimated amounts:
Base amount of federal Part I tax
Recapture of investment tax credit
Refundable tax on CCPC's investment income
Subtotal			A
Minus the total of the following estimated amounts:
Small business deduction
Federal tax abatement
Manufacturing and processing profits deduction
Investment corporation deduction
Additional deduction - credit unions
Federal foreign non-business income tax credit
Federal foreign business income tax credit
General tax reduction for CCPCs
General tax reduction
Federal logging tax credit
Federal qualifying environmental trust tax credit
Investment tax credit
Subtotal			B
Total estimated 2012 Part I tax payable* (line A minus line B)
Total estimated 2012 Part VI tax payable*
Total estimated 2012 Part VI.1 tax payable*
Total estimated 2012 Part XIII.1 tax payable*
Estimated 2012 net provincial and territorial tax payable before refundable credits**			C
* Use these amounts when you calculate your monthly instalment payments on Worksheet 2 or your quarterly instalment payments on Worksheet 3. ** Use this amount when you calculate your monthly instalment payments on Worksheet 2 or your quarterly instalment payments on Worksheet 3. Include Nova Scotia tax on large corporations, but do not include provincial tax payable from Quebec or Alberta. Ontario tax payable before refundable credits includes only corporate income tax (net of non-refundable credits), corporate minimum tax, capital tax, and special additional tax on life insurance corporations.

Worksheet 1 - Calculating estimated tax payable and tax credits for 2012 (continued)

Calculating the estimated refundable tax credits for 2011
Total of:
Investment tax credit refund
Dividend refund
Federal capital gains refund
Federal qualifying environmental trust tax credit refund
Canadian film or video production tax credit refund
Film or video production services tax credit refund
Tax withheld at source
Provincial and territorial capital gains refund
Newfoundland and Labrador research and development tax credit
Newfoundland and Labrador film and video industry tax credit
Nova Scotia film industry tax credit
Nova Scotia research and development tax credit
Nova Scotia digital media tax credit
New Brunswick film tax credit
New Brunswick research and development tax credit
Ontario qualifying environmental trust tax credit
Ontario co-operative education tax credit
Ontario apprenticeship training tax credit
Ontario computer animation and special effects tax credit
Ontario film and television tax credit
Ontario production services tax credit
Ontario interactive digital media tax credit
Ontario sound recording tax credit
Ontario book publishing tax credit
Ontario innovation tax credit
Ontario business-research institute tax credit
Manitoba cultural industries printing tax credit
Manitoba refundable cooperative development tax credit
Manitoba research and development tax credit
Manitoba interactive digital media tax credit
Manitoba book publishing tax credit
Manitoba green energy equipment tax credit
Manitoba film and video production tax credit
Manitoba manufacturing investment tax credit
Manitoba co-op education and apprenticeship tax credit
Manitoba odour-control tax credit
Saskatchewan qualifying environmental trust tax credit
Saskatchewan film employment tax credit
Saskatchewan manufacturing and processing investment tax credit
Saskatchewan research and development tax credit
British Columbia qualifying environmental trust tax credit
British Columbia film and television tax credit
British Columbia production services tax credit
British Columbia mining exploration tax credit
British Columbia SR&ED refundable tax credit
British Columbia book publishing tax credit
British Columbia training tax credit
British Columbia Interactive Digital Media Tax Credit
Yukon research and development tax credit
Nunavut business training tax credit
Total estimated refundable tax credits for 2012*			D
* Use this amount when you calculate your monthly instalment payments on Worksheet 2 or your quarterly instalment payments on Worksheet 3.

Worksheet 2 - Calculating monthly instalment payments for 2012

• Use this worksheet to calculate your monthly instalment payments.
• Use the amounts you calculated on Worksheet 1 to complete the current-year information area on this worksheet.
• You can use the option that results in the least amount payable by instalments. Any remaining unpaid tax is payable on or before the balance due date.
  Option 1 – One-twelfth of the estimated tax payable for the current tax year is due each month of the tax year.
  Option 2 – One-twelfth of the tax payable from the previous tax year is due each month of the current tax year.
  Option 3 – One-twelfth of the tax payable from the year before the previous tax year is due in each of the first two months of the current year. One-tenth of the difference between the tax for the previous tax year and total of the first two payments is due in each of the remaining 10 months of the current tax year.
• We will charge interest if you use option 1 and the estimated tax is lower than the year's actual tax and the tax calculated using option 2 or 3.
• This schedule is a worksheet only and does not have to be filed with your T2 Corporation Income Tax Return.
  

Instalment payments are due each month of your corporation's tax year.

	Option 1 2012	Option 2 2011	Option 3 2010
Add: Part I tax payable
Part VI tax payable	+	+	+
Part VI.1 tax payable	+	+	+
Part XIII.1 tax payable	+	+	+
Total of Parts I, VI, VI.1, and XIII.1 tax*	=	=	=
Add: Provincial and territorial tax payable before refundable credits**	+	+	+
Total of Parts I, VI, VI.1, and XIII.1 tax, as well as provincial and territorial tax	=	=	=
Subtract: Total 2011 estimated refundable credits (enter the amount from line D of Worksheet 1)	-	-	-
Instalment base amount	=	=	=
Divide by:	÷     12	÷     12	÷     12
Each of the 12 payments due under options 1 and 2	=	=
Each of the first 2 payments under option 3			=
Previous-year instalment base (option 2 instalment base amount above)
Subtract: The total of payments 1 and 2 under option 3			-
Difference			=
Divide by:			÷     10
Each of the remaining 10 payments under option 3			=
* If the total of Parts I, VI, VI.1 and XIII.1 tax is $3,000 or less for either 2012 or 2011, you do not have to make instalment payments on this amount for 2012. ** This amount is net of provincial and territorial non-refundable credits. If the provincial and territorial tax before refundable credits is $3,000 or less for either 2012 or 2011, you do not have to make instalment payments on this amount for 2012. Include Nova Scotia tax on large corporations, but do not include provincial tax payable from Quebec or Alberta. Ontario tax payable before refundable credits includes only corporate income tax (net of non-refundable credits), corporate minimum tax, capital tax, and special additional tax on life insurance corporations.

Note
For examples of how to calculate monthly instalment payments with Worksheet 2, see appendices 4 and 5.

Worksheet 3 - Calculating quarterly instalment payments for 2012

• Use this worksheet to calculate quarterly instalment payments for an eligible Canadian-controlled private corporation (CCPC).
• To know if you are eligible to make quarterly instalment payments, see Guide T7B-CORP, Corporation Instalment Guide
• Use the amounts you calculated on Worksheet 1 to complete the current-year information area on this worksheet.
• You can use the option that results in the least amount payable by instalments. Any remaining unpaid tax is payable on or before the balance due date.
  Option 1 – One-quarter of the estimated tax payable for the current tax year is due each quarter of the tax year.
  Option 2 – One-quarter of the tax payable from the previous tax year is due each quarter of the current tax year.
  Option 3 – One-quarter of the tax payable from the year before the previous tax year is due the first quarter of the current year. One-third of the difference between the tax for the previous tax year and the first payment is due in each of the remaining 3 quarters of the current tax year.
• We will charge interest if you use option 1 and the estimated tax is lower than the year's actual tax and the tax calculated using option 2 or 3.
• This schedule is a worksheet only and does not have to be filed with your T2 Corporation Income Tax Return.
  

Instalment payments are due each quarter of your small CCPC's tax year.

	Option 1 2012	Option 2 2011	Option 3 2010
Add: Part I tax payable
Part VI tax payable	+	+	+
Part VI.1 tax payable	+	+	+
Part XIII.1 tax payable	+	+	+
Total of Parts I, VI, VI.1, and XIII.1 tax*	=	=	=
Add: Provincial and territorial tax payable before refundable credits**	+	+	+
Total of Parts I, VI, VI.1, and XIII.1 tax, as well as provincial and territorial tax	=	=	=
Subtract: Total 2012 estimated refundable credits (enter the amount from line D of Worksheet 1)	-	-	-
Instalment base amount	=	=	=
Divide by:	÷     4	÷     4	÷     4
Each of the four payments due under options 1 and 2	=	=
First payment under option 3			=
Previous-year instalment base (option 2 instalment base amount above)
Subtract: First payment under option 3			-
Difference			=
Divide by:			÷     3
Each of the remaining three payments under option 3			=
* If the total of Parts I, VI, VI.1, and XIII.1 tax is $3,000 or less for either 2012 or 2011, you do not have to make instalment payments on this amount for 2012. ** This amount is net of provincial and territorial non-refundable credits. If the provincial and territorial tax before refundable credits is $3,000 or less for either 2012 or 2011, you do not have to make instalment payments on this amount for 2012. Include Nova Scotia tax on large corporations, but do not include provincial tax payable from Quebec or Alberta. Ontario tax payable before refundable credits includes only corporate income tax (net of non-refundable credits), corporate minimum tax, capital tax, and special additional tax on life insurance corporations.

Note
For an example of how to calculate quarterly instalment payments with Worksheet 3, see Appendix 6.

Appendices

Appendix 1 - Instalment base - Amalgamations
[Regulation 5301(4)]

Corporation A	Corporation B	Corporation C
Start of tax year: January 1, 2010	Start of tax year: January 1, 2010	Start of tax year: January 1, 2010
End of tax year: December 31, 2010	End of tax year: December 31, 2010	End of tax year: December 31, 2010
Tax payable: $2,000	Tax payable: $2,500	Tax payable: $3,000
Start of tax year: January 1, 2011	Start of tax year: January 1, 2011	Start of tax year: January 1, 2011
End of tax year: December 31, 2011	End of tax year: December 31, 2011	End of tax year: December 31, 2011
Tax payable: $4,000	Tax payable: $5,000	Tax payable: $6,000

Corporations A, B, and C amalgamated on January 1, 2012 to form Corporation ABC.

For its first tax year, which will end on December 31, 2012, Corporation ABC estimated its tax payable to be $20,000.

For Regulation 5301(4), the instalment base amounts for Corporation ABC's first tax year (which ends on December 31, 2012) would be:

Tax year-end December 31, 2012	First instalment base amount (1)	Second instalment base amount (2)
Corporation ABC	Predecessors (Corporations A + B + C)	Predecessors (Corporations A + B + C)
$20,000	4,000 + 5,000 + 6,000 = $15,000	2,000 + 2,500 + 3,000 = $7,500

(1) The first instalment base amount for the successor's 2012 tax year is $15,000. This amount is the total of the predecessor corporations' tax payable (2011 for their last tax year before amalgamation.

(2) The second instalment base amount for the successor's 2012 tax year is $7,500. This amount is the total of the predecessor corporations' first instalment base amount for the 2011 tax year.

For Regulation 5301(4), the instalment base year amounts for Corporation ABC's second tax year that ends on December 31, 2013 would be:

Tax year-end December 31, 2013	First instalment base amount (1)	Second instalment base amount (2)
Corporation ABC	Corporation ABC	Predecessors' bases (Corporations A + B + C)
$25,000*	$20,000	4,000 + 5,000 + 6,000 = $15,000

* Estimate of tax payable for 2013

(1) The first instalment base amount for the successor's 2013 tax year is $20,000.

Note
If the successor's first tax year had been less than 183 days, the first instalment base amount for 2013 would have equalled the greater of the following two amounts:

• the adjusted base amount for 2012; and
• the adjusted base amount for the next previous tax year of more than 182 days, as stated in the requirements related to short tax years.

(2) The second instalment base amount for the successor's 2013 tax year is $15,000. This amount is the successor's first instalment base amount for its first tax year (2012).

Appendix 2 - Instalment base - Wind-ups
[Regulation 5301(6)]

On July 31, 2012, a subsidiary corporation wound up and dissolved, and all its assets were distributed to its parent corporation.

Note
Although the subsidiary must file a return for the tax year that includes January 1, 2012 to July 31, 2012, the tax assessed for this period will not be part of the instalment base in any year for the parent corporation.

Tax year-end	Tax payable (parent)	Tax payable (subsidiary)
December 31, 2010	$14,000	$5,000
December 31, 2011	$12,000	$6,000
December 31, 2012*	$20,000	N/A

* For the current tax year ending on December 31, 2012, the estimated tax payable is $20,000.

For Regulation 5301(6), the instalment base year amounts for the parent corporation's tax year that ends on December 31, 2012 would be:

Before the wind-up

Tax year-end December 31, 2012	First instalment base amount	Second instalment base amount
$20,000	$12,000	$14,000

Seven instalment payments of $1,000 each ($12,000 ÷ 12) are due up to July 31, 2012.

After the wind-up

Tax year-end December 31, 2012	First instalment base amount (1)	Second instalment base amount (2)
$20,000	12,000 + 6,000 = $18,000	14,000 + 5,000 = $19,000

Five instalment payments of $1,500 each ($18,000 ÷ 12) are due up to December 31, 2012.

(1) The first instalment base amount for the parent's 2012 tax year is $18,000. This amount is the total of:

• the parent's normal first instalment base amount of $12,000; and
• the subsidiary's first instalment base amount of $6,000 for its 2012 tax year.

(2) The second instalment base amount for the parent's 2012 tax year is $19,000. This amount is the total of:

• the parent's normal second instalment base amount of $14,000; and
• the subsidiary's second instalment base amount of $5,000 for its 2012 tax year.

For Regulation 5301(6), the instalment base year amounts for the parent's tax year that ends on December 31, 2013 would be:

Tax year-end December 31, 2013	First instalment base amount (1)	Second instalment base amount (2)
$26,000*	20,000 + (6,000 × 7/12) = $23,500	12,000 + 6,000 = $18,000

* estimate of tax payable for the next tax year

(1) The first instalment base amount for the parent's 2013 tax year is $23,500. This amount is the total of:

• the parent's normal first instalment base amount of $20,000; and
• the subsidiary’s first instalment base amount of $6,000 for its 2012 tax year, multiplied by the number of complete months (7) in the parent’s 2012 tax year before the winding-up distribution divided by 12. Calculate this amount as follows: ($6,000 × 7) ÷ 12 = $3,500.

(2) The second instalment base for the parent’s 2013 tax year is $18,000. This amount is the total of:

• the parent's normal first instalment base amount of $12,000 for its 2012 tax year; and
• the subsidiary's first instalment base amount of $6,000 for its 2012 tax year.

Appendix 3 - Instalment base - Transfers or rollovers [Regulation 5301(8)]

On October 31, 2011, a corporation (transferor) disposed of all its property through a section 85 rollover to another corporation it was not dealing with at arm’s length (transferee).

Note
Although the transferor may have an income tax liability for its tax year that includes the period July 1, 2011 to October 31, 2011, in which all or substantially all of its property has been disposed of, the actual tax assessed for that year will not be part of the transferee’s instalment base in any year.

Tax year-end	Tax payable (transferee)	Tax payable (transferor)
June 30, 2010	$14,000	$5,000
June 30, 2011	$12,000	$6,000
June 30, 2012*	$20,000	N/A

* For the current tax year ending on June 30, 2012, the transferee estimated its tax payable to be $20,000.

For Regulation 5301(8), the instalment base year amounts for the transferee's tax year that ends on June 30, 2012 would be:

Before the rollover

Tax year-end June 30, 2012	First instalment base amount	Second instalment base amount
$20,000	$12,000	$14,000

Four instalment payments of $1,000 each ($12,000 ÷ 12) are due up to October 31, 2011.

After the rollover

Tax year-end June 30, 2012	First instalment base amount (1)	Second instalment base amount (2)
$20,000	12,000 + 6,000 = $18,000	14,000 + 5,000 = $19,000

Eight instalment payments of $1,500 each ($18,000 ÷ 12) are due up to June 30, 2012.

(1) The first instalment base amount for the transferee's 2012 tax year is $18,000. This amount is the total of:

• the transferee's normal first instalment base amount of $12,000; and
• the transferor's first instalment base amount of $6,000 for its 2012 tax year.

(2) The second instalment base amount for the transferee's 2012 tax year is $19,000. This amount is the total of:

• the transferee's normal second instalment base amount of $14,000; and
• the transferor's second instalment base amount of $5,000 for its 2012 tax year.

For Regulation 5301(8), the instalment base year amounts for the transferee's tax year that ends on June 30, 2013 would be:

Tax year-end June 30, 2013	First instalment base amount (1)	Second instalment base amount (2)
$27,000*	20,000 + (6,000 × 4/12) = $22,000	12,000 + 6,000 = $18,000

* estimate of tax payable for the transferee's next tax year

(1) The first instalment base amount for the transferee's 2013 tax year is $22,000. This amount is the total of:

• the transferee's normal first instalment base amount of $20,000; and
• the transferor’s first instalment base amount of $6,000 for its 2012 tax year, multiplied by the number of complete months (4) in the transferee’s 2012 tax year before the rollover, divided by 12. Calculate this amount as follows: ($6,000 × 4) ÷ 12 = $2,000.

(2) The second instalment base for the transferee's 2013 tax year is $18,000. This amount is the total of:

• the transferee's normal first instalment base amount of $12,000 for its 2012 tax year; and
• the transferor's first instalment base amount of $6,000 for its 2012 tax year.

Appendix 4 - Worksheet 2 - Example 1

Corporation A has estimated its tax for 2012 at $900,000. The actual taxes for 2011 and 2010 are $912,000 and $60,000 respectively. Using Worksheet 2, we will determine the most advantageous option.

Worksheet 2 - Calculating monthly instalment payments for 2012

Instalment payments are due each month of your corporation's tax year.

	Option 1 2012	Option 2 2011	Option 3 2010
Add: Part I tax payable	900,000	912,000	60,000
Part VI tax payable	+	+	+
Part VI.1 tax payable	+	+	+
Part XIII.1 tax payable	+	+	+
Total of Parts I, VI, VI.1, and XIII.1 tax*	=   900,000	=   912,000	=    60,000
Add: Provincial and territorial tax payable before refundable credits**	+	+	+
Total of Parts I, VI, VI.1, and XIII.1 tax, as well as provincial and territorial tax	=   900,000	=   912,000	=    60,000
Subtract: Total 2012 estimated refundable credits (enter the amount from line D of Worksheet 1)	-	-	-
Instalment base amount	=   900,000	=   912,000	=    60,000
Divide by:	÷      12	÷      12	÷      12
Each of the 12 payments due under options 1 and 2	=    75,000	=    76,000
Each of the first 2 payments under option 3			=      5,000
Previous-year instalment base (option 2 instalment base amount above)			912,000
Subtract: Total of payments 1 and 2 under option 3			-     10,000
Difference			=   902,000
Divide by:			÷      10
Each of the remaining 10 payments under option 3			=    90,200
* If the total of Parts I, VI, VI.1 and XIII.1 tax is $3,000 or less for either 2012 or 2011, you do not have to make instalment payments on this amount for 2012. ** This amount is net of provincial and territorial non-refundable credits. If the provincial and territorial tax before refundable credits is $3,000 or less for either 2012 or 2011, you do not have to make instalment payments on this amount for 2012. Include Nova Scotia tax on large corporations, but do not include provincial tax payable from Quebec or Alberta. Ontario tax payable before refundable credits includes only corporate income tax (net of non-refundable credits), corporate minimum tax, capital tax, and special additional tax on life insurance corporations.

Option 1 is the most advantageous of the three options. Therefore, Corporation A will have to remit an instalment payment of $75,000 for each month. We may charge interest if the corporation uses option 1 and its estimated tax was lower than the year’s actual tax and the tax calculated using option 2 or 3.

Appendix 5 - Worksheet 2 - Example 2

Corporation A has estimated its tax for 2012 at $912,000. The actual taxes for 2011 and 2010 are $912,000 and $60,000, respectively. Using Worksheet 2, we will determine the most advantageous option.

Worksheet 2 - Calculating monthly instalment payments for 2012

Instalment payments are due each month of your corporation's tax year.

	Option 1 2012	Option 2 2011	Option 3 2010
Add: Part I tax payable	912,000	912,000	60,000
Part VI tax payable	+	+	+
Part VI.1 tax payable	+	+	+
Part XIII.1 tax payable	+	+	+
Total of Parts I, VI, VI.1, and XIII.1 tax*	=   912,000	=   912,000	=    60,000
Add: Provincial and territorial tax payable before refundable credits**	+	+	+
Total of Parts I, VI, VI.1, and XIII.1 tax, as well as provincial and territorial tax	=   912,000	=   912,000	=    60,000
Subtract: Total 2012 estimated refundable credits (enter the amount from line D of Worksheet 1)	-	-	-
Instalment base amount	=   912,000	=   912,000	=    60,000
Divide by:	÷      12	÷      12	÷      12
Each of the 12 payments due under options 1 and 2	=    76,000	=    76,000
Each of the first 2 payments under option 3			=      5,000
Previous-year instalment base (option 2 instalment base amount above)			912,000
Subtract: Total of payments 1 and 2 under option 3			-     10,000
Difference			=   902,000
Divide by:			÷      10
Each of the remaining 10 payments under option 3			=    90,200
* If the total of Parts I, VI, VI.1 and XIII.1 tax is $3,000 or less for either 2012 or 2011, you do not have to make instalment payments on this amount for 2012. ** This amount is net of provincial and territorial non-refundable credits. If the provincial and territorial tax before refundable credits is $3,000 or less for either 2012 or 2011, you do not have to make instalment payments on this amount for 2012. Include Nova Scotia tax on large corporations, but do not include provincial tax payable from Quebec or Alberta. Ontario tax payable before refundable credits includes only corporate income tax (net of non-refundable credits), corporate minimum tax, capital tax, and special additional tax on life insurance corporations.

Option 3 is the most advantageous of the three options. Therefore, Corporation A will have to remit an instalment payment of $5,000 in each of the first two months and $90,200 for each of the last 10 months.

Note
The total amount of instalments calculated under option 3 is always the same as under option 2, but option 3 is often chosen when the first two payments are lower.

Appendix 6 - Worksheet 3 - Example

Corporation A has estimated its tax for 2012 at $240,000. The actual taxes for 2011 and 2010 are $240,000 and $36,000, respectively. Using Worksheet 3, we will determine the most advantageous option.

Worksheet 3 - Calculating quarterly instalment payments for 2012

Instalment payments are due each quarter of your small CCPC's tax year.

	Option 1 2012	Option 2 2011	Option 3 2010
Add: Part I tax payable	240,000	240,000	36,000
Part VI tax payable	+	+	+
Part VI.1 tax payable	+	+	+
Part XIII.1 tax payable	+	+	+
Total of Parts I, VI, VI.1, and XIII.1 tax*	=   240,000	=   240,000	=    36,000
Add: Provincial and territorial tax payable before refundable credits**	+	+	+
Total of Parts I, VI, VI.1, and XIII.1 tax, as well as provincial and territorial tax	=   240,000	=   240,000	=    36,000
Subtract: Total 2012 estimated refundable credits (enter the amount from line D of Worksheet 1)	-	-	-
Instalment base amount	=   240,000	=   240,000	=    36,000
Divide by:	÷       4	÷       4	÷       4
Each of the four payments due under options 1 and 2	=    60,000	=    60,000
First payment under option 3			=      9,000
Previous-year instalment base (option 2 instalment base amount above)			240,000
Subtract: First payment under option 3			-      9,000
Difference			=   231,000
Divide by:			÷       3
Each of the remaining three payments under option 3			=    77,000
* If the total of Parts I, VI, VI.1, and XIII.1 tax is $3,000 or less for either 2012 or 2011, you do not have to make instalment payments on this amount for 2012. ** This amount is net of provincial and territorial non-refundable credits. If the provincial and territorial tax before refundable credits is $3,000 or less for either 2012 or 2011, you do not have to make instalment payments on this amount for 2012. Include Nova Scotia tax on large corporations, but do not include provincial tax payable from Quebec or Alberta. Ontario tax payable before refundable credits includes only corporate income tax (net of non-refundable credits), corporate minimum tax, capital tax, and special additional tax on life insurance corporations.

Option 3 is the most advantageous of the three options. Therefore, Corporation A will have to remit an instalment payment of $9,000 for the first quarter and $77,000 for each of the last 3 quarters.

Note
The total amount of instalments calculated under option 3 is always the same as under option 2, but option 3 is often chosen when the first payment is lower.

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