Tax Installments: HST, Income Tax

Installments: What are they? Why do I owe them?

Why Am I Getting HST Arrears Notices?

HST RemittancesI'm a yearly filer for HST. I file and pay on time, before the deadline — so why am I getting arrears bills from Revenue Canada?

You're not alone. This is a common and frustrating question many tax remitters have.

A Real Example: ABC Company

ABC Company files and pays their HST annually. For two years, everything goes smoothly:

• Year 1: Owes $1,500 — filed and paid on time.

• Year 2: Owes $4,000 — filed and paid on time.

Suddenly, in Year 3, they receive a notice of arrears — with penalties and interest attached.

But why? Everything was filed and paid correctly... or so they thought.

What Happened?

What many yearly HST filers don’t realize is:

If you owe more than $3,000 in HST for the year, you are required to make quarterly instalments the following year.

In other words, because ABC Company owed $4,000 in Year 2, they should have made four quarterly payments of $1,000 in Year 3 — not waited to pay it all at once when filing.

Important:

The government expects HST to be paid in the quarter it was collected, even for yearly filers who exceeded the $3,000 threshold.

Note: CRA is not obligated to notify you. The responsibility is on you to understand and comply.

How to Avoid HST Penalties and Interest

If you expect to owe more than $3,000 in HST for the year:

Switch your filing frequency from yearly to quarterly. Track your sales and HST collected each quarter.

For example:

• Q1 (Jan–Mar): You must file and pay by April 30.

• Repeat for Q2, Q3, and Q4 — each with a 30-day window after the quarter ends.

  
  

What About Income Tax?

The rules for personal and business income tax are similar — but with one key difference:

The CRA must send you an instalment notice before they can penalize you for not paying in instalments.

However, you’re still expected to make accurate quarterly payments if your taxes owing jump from one year to the next.

For example:

• Year 1: You owed $3,000.

• Year 2: You owed $8,000.

• Year 3: You are now expected to make 4 x $2,000 instalments.

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If you only pay $2,000 total and file at year-end owing $8,000 — CRA will assess interest and penalties on the underpaid instalments.

My Takeaway

It’s a good practice to keep your books up to date — monthly or at least quarterly.

You should always know:

• If you're making or losing money

• If you owe taxes

• If you're due for a refund

• If you're exceeding filing thresholds (like HST over $3,000)

  
  

Staying current can help you avoid costly surprises — and in the case of HST, help you avoid penalties and interest that come from something as simple as filing frequency.