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Understanding GST Instalments: How to Avoid Tax Surprises as a Sole Proprietor or Small Business Owner
By Monique Verlaan profile image Monique Verlaan
3 min read

Understanding GST Instalments: How to Avoid Tax Surprises as a Sole Proprietor or Small Business Owner

Ever felt that sinking feeling when tax season rolls around? As a Canadian sole proprietor or small business owner, there’s one lesser-known tax obligation that can catch you off guard: GST instalments. Don’t worry—this guide will break it down into easy-to-digest pieces so you can stay on top of your obligations and keep more cash in your pocket throughout the year.

Why Should You Care About GST Instalments?

Picture this: you’re cruising through your fiscal year, earning income and collecting GST, only to discover a massive tax bill at year-end. Sound stressful? GST instalments help you dodge these panic-inducing lumpsums. By making smaller, periodic payments, you spread out the burden and keep your business’s cash flow in better shape.

What Exactly Are GST Instalments?

In a nutshell, GST instalments are quarterly tax payments required by the Canada Revenue Agency (CRA) if you expect to owe a certain amount of GST/HST for the year. Instead of paying it all at once when you file your annual GST return, you pay in smaller chunks during the year—helping you avoid a scary, big bill later on.

Here’s how it works:

  • Net tax is the difference between the GST/HST you collect from customers and the GST/HST you pay on your business expenses (input tax credits).
  • If your net tax owing is over a certain threshold, the CRA requires you to pay in instalments (typically every three months).

Who Needs to Pay in Instalments?

Wondering if you’re on the hook? The magic number is $3,000. Specifically, if your net GST/HST owing hits $3,000 or more:

  1. In the current year and in either of the two previous years, you’ll need to make instalments.
  2. If you’re a new business, you generally won’t pay instalments in your first year. But if you surpass $3,000 owed in that first year, expect to pay quarterly in the future. 

How Do You Figure Out Your Instalment Amount?

If the CRA decides you need to pay GST in instalments, they’ll let you know. You’ll have two main ways to calculate how much to pay every quarter:

  1. Prior-Year Method
    • Take what you owed in net GST/HST last year and divide by four.
    • Super simple and great if your business activity hasn’t changed much year to year.
  2. Current-Year Method
    • Estimate what you’ll owe this year and divide by four.
    • If you think you’ll owe less this year (maybe you scaled down or changed your operations), this can save you from overpaying.
    • However, if your estimates are too low, you could face interest charges. 

When Do You Pay Your Instalments?

You’ll typically pay quarterly on these dates:

  • April 30
  • July 31
  • October 31
  • January 31 (of the next year)

Mark these dates in your calendar or set reminders so you don’t miss them. Late payments can trigger interest charges that grow daily.

Easy Ways to Make Your Instalment Payments

The CRA makes it pretty convenient to pay:

  • CRA My Business Account – Pay online anytime.
  • Pre-Authorized Debit – Let the CRA automatically withdraw your instalments on due dates.
  • Online Banking – Send a payment through your financial institution.
  • By Cheque – Include a completed Form RC160 (GST/HST Remittance Voucher). 

What Happens If You Don’t Pay on Time?

Nobody wants to deal with interest charges—especially when they compound daily, which means they grow fast. If you underpay or skip instalments, you could be stuck with these extra costs. Plus, missing instalments sets you up for a whopping balance due at tax time, which can be rough on your cash flow.

Key Takeaways

  • Know Your Threshold: If you owe more than $3,000 in GST/HST, instalments are likely in your future.
  • Keep It Simple: The Prior-Year Method is the easiest way to calculate quarterly payments.
  • Stay Organized & On Time: Late payments mean extra interest charges. No thanks!
  • Plan Your Cash Flow: Instalments help you avoid huge lump-sum hits during tax season.

Final Thoughts: Staying compliant with GST instalments can feel like one more line on your to-do list—but it’s a crucial step toward keeping your business finances stable. Rather than seeing them as just another obligation, think of instalments as a way to smooth out your tax payments so you’re not blindsided by a big bill at the end of the year.

If you’re unsure about your GST instalment obligations or you want some backup in calculating payments, consult a tax professional or accountant. They’ll help you steer clear of penalties and set your business on the right track.

By understanding (and embracing) GST instalments, you can focus on what you do best—growing your business—without the fear of a nasty tax surprise lurking around the corner.

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