HST instalments for sole proprietors: the $3,000 rule

Who has to pay instalments?

Instalments only apply to annual filers. According to CRA's instalment page, if your net tax for the previous fiscal year was $3,000 or more, you may have to make quarterly instalment payments in the current fiscal year. Monthly and quarterly filers do not pay instalments, because they already remit every period. In your first fiscal year as a registrant there is no previous year to measure, and CRA has special rules for first-time filers to work out instalments in the second fiscal year.

When are instalments due?

Each instalment is due within one month after the end of each fiscal quarter. For a December 31 fiscal year-end:

The balance, if any, is due with the annual return (April 30 for an individual with business income and a December 31 year-end). Source: Canada.ca: When to pay GST/HST instalments.

How much is each instalment?

CRA lets you base instalments on either of two figures:

• Last year's net tax: pay one quarter of the previous fiscal year's net tax each quarter.
• This year's estimated net tax: pay one quarter of your estimate for the current year. If the estimate turns out too low, CRA charges interest on the shortfall.

Instalment size at a glance

The $3,000 threshold and the one-quarter rule come from CRA's instalment page. Quick Method net tax is worked out with the remittance rates in CRA guide RC4058. To see how a change in expenses could move your net tax (and your instalments) between the two methods, check the break-even grid.

Worked example

An Ontario consultant on the Quick Method had $80,000.00 of sales last year. Using the calculator's default inputs, their net tax was $7,655.20 (8.8% of $90,400.00 tax-included sales, minus the $300 credit). That is over $3,000, so this year they would typically pay instalments of about $1,913.80 each (one quarter of $7,655.20) on April 30, July 31, October 31 and January 31. When they file the annual return, the instalments are credited against the year's net tax and only the difference is paid or refunded.

Had they been on the regular method with, say, $4,000 of ITCs, last year's net tax would have been $6,400.00, giving instalments of $1,600.00. Lower net tax means smaller instalments, which is one more reason to compare both methods.

Interest and penalties

CRA charges instalment interest when payments are late or too small, and the rate is compounded daily. Paying the full instalment on time each quarter avoids this. You can set up pre-authorized debits or pay through My Business Account or online banking.

Annual vs quarterly filing

If instalments feel like quarterly filing anyway, you could ask CRA to switch you to quarterly reporting periods. That means four returns a year but no separate instalment schedule. See annual vs quarterly HST filing.