When is interest charged?
Instalments are based on your prior year — so if this year looks very similar to last year, then you can expect to owe a similar amount in GST and corporate tax.
Here’s how they ding you if you don't make your instalments:
- If you owe exactly the same this year as you did last year: If you don’t make your instalments, you will be charged interest from the date the instalment was due, to the date the amount is paid.
- You don’t owe as much this year: You are only charged interest on instalments if owe money and do not make the payment. So, say you owed $8,000 last year and your instalments were supposed to be $2,000/quarter, but this year you only owe $6,000. If you make no instalments, you would be charged interest on your first 3 (unpaid) instalments, but not your fourth. If you end up owing less than $3,000, and do not make any instalments, you will not be charged any interest.
- You owe more than last year: If you didn’t owe more than $3,000 last year, you don’t need to make instalments. So even if you end up owing $30,000, you will not be charged interest. If you had instalments to make this year and you know you’ll owe more than those instalments, you only have to pay the calculated amounts, which were based on last year. The remainder still needs to be paid at the payment deadline, so make sure you save for this. You can also make additional instalments if you want.
When does interest start being charged?
Each instalment payment has its own interest charge. Your first missed instalment will start accruing interest the day after it was due, and continue accruing until it is paid. The same would occur for your second, third, and fourth payment.
If your year-end is June 30, 2019, and your instalments were due October 31, 2018, January 31, 2019, April 30, 2019 and July 31, 2019, and you just pay all your tax owing on Sept 20, 2019, your interest charged would be as follows:
Instalment 1: Nov 1, 2018 to Sept 20, 2019
Instalment 2: Feb 1, 2019 to Sept 20, 2019
Instalment 3: May 1, 2019 to Sept 20, 2019
Instalment 4: Aug 1, 2019 to Sept 20, 2019
How much interest is charged?
Interest is compounded daily at 6%.