How much to set aside for tax — a quarterly method

No flat percentage works. The rule of thumb people want — a quarter, a third, 40% — assumes a tax rate that depends on your province, on how much profit you make, and on whether the money stays in the corporation or comes out to you. What works instead is a loop you run four times a year: estimate the corporation’s tax on year-to-date profit, move that amount into a separate account, and true up the running total next quarter. Every estimate is wrong. It stops mattering once the next quarter corrects it.

There are two layers and they arrive at different times. Your corporation owes tax on its profit. You owe tax on what the corporation pays you. The first layer starts the year the company turns profitable; the second starts the year the money starts moving.

Why the rules of thumb miss in both directions

Corporate tax on active business income is low by design. For 2026 an eligible CCPC pays a federal rate of 9% on the first C$500,000, with a provincial rate on top that depends on where you file. Combined, that lands well below what you would pay personally on the same dollar. So a set-aside built for a sole proprietor overshoots for a corporation that retains most of its profit, and undershoots for the owner who pays everything out as dividends, because nothing is withheld from a dividend and the personal tax on it is entirely yours to carry.

The rate itself is not fixed either. Past the first C$500,000 of active business income federally, the next dollar is taxed at the general rate. Corporations that are associated share one limit between them. Enough passive investment income inside the corporation grinds the limit down. Any of those moves the rate your set-aside is built on, which is the argument for re-running the estimate rather than picking a percentage once.

The corporate layer starts with profit, not the bank balance

Revenue minus expenses for the year to date is the base. Three things routinely separate the number in the bank from the number the tax is calculated on:

• GST/HST you collected is not revenue. It is the CRA’s money sitting in your account until you remit it, so an owner setting aside a percentage of deposits is counting the same dollars twice.
• Some expenses are not fully deductible. Meals and entertainment are generally 50% deductible; eligible long-haul meals get 80%, which matters to trucking and transport owners and almost nobody else.
• Equipment and vehicles come off over several years through capital cost allowance, the tax version of depreciation, rather than in the year you buy them. A C$60,000 truck is not a C$60,000 deduction, and buying versus leasing changes the shape of that deduction rather than its existence.

Money you take out of the company is not an expense either. It is a dividend, a salary, or a balance in your shareholder-loan account, and only the salary reduces the corporation’s taxable income.

The personal layer starts the day the money moves

On salary, the set-aside already happens — income tax is withheld from each pay and remitted. On dividends, nothing is withheld, so the personal bill accumulates quietly until April 30. Which route you are on is a decision with several other consequences; for cash planning, the only question is whether anyone is withholding on your behalf.

Then instalments start, and the tax account grows a withdrawal side. Most corporations pay monthly, due the last day of each month of the tax year; eligible small CCPCs with a clean compliance history can generally pay quarterly instead. Instalments are generally not required where the corporation’s total tax payable for the year is C$3,000 or less. On your own return, the CRA generally asks for instalments once your net tax owing is more than C$3,000 (C$1,800 for Quebec residents) in the current year and in either of the two years before it, due March 15, June 15, September 15 and December 15, with reminders mailed in February and August. The deadline table has the rest of the calendar.

Once instalments are running, the account is a float rather than a pile: money in quarterly, money out monthly, and a small balance at year-end.

The two years that ambush people

The first profitable year. No corporate instalments were required, because there was no prior-year tax to calculate them from, so nothing left the account all year. Then the balance of tax comes due two months after year-end — three for many CCPCs that claimed the small-business deduction, subject to conditions. For a December 31 year-end that is the end of February or the end of March, and by then instalments for the new year are already going out. The second-year squeeze works that arithmetic through.

The first dividend-only year. An owner on salary had tax withheld from every pay without thinking about it. Switch to dividends and the withholding stops; the tax does not. Nothing is due until April 30 of the following year, and then the instalment reminders arrive for the year after that — two new obligations within months of each other.

Guessing low has a price, and it compounds daily

Miss an instalment or pay it short and interest runs on the shortfall from that instalment’s due date, at a prescribed rate the CRA resets quarterly, compounded daily. Once instalment interest is large enough, a further penalty applies on top. None of it is deductible to the corporation, so a dollar of instalment interest costs a full dollar in a way a dollar of rent does not.

Guessing high is cheaper. The money sits idle, and instalments paid early or in excess generally earn offsetting credit interest that can absorb interest on a later shortfall in the same year. The asymmetry is the point: too much set aside costs you the use of cash for a few months; too little costs interest plus a scramble in the quarter the balance comes due.

A worked example: C$25,000 of profit a quarter

Illustrative, December 31 year-end. Assume a combined federal-and-provincial small-business rate of 15%. That is a round number chosen so the arithmetic is readable — it is not the rate in any particular province, and yours will differ.

Q3 was a C$40,000 quarter — a large invoice landed. Notice what the method did with it: nothing special. The year-to-date figure absorbed it and the transfer grew to match, with no recalculation of anything that came before. That is why the estimate runs on cumulative profit rather than on each quarter separately. A bad quarter works the same way in reverse, and the transfer is simply smaller.

The year ends with C$17,250 parked against a bill nobody has computed yet. The T2, your corporation’s income tax return, produces the real number months later, and the difference gets settled at the balance-due date. In year two, monthly instalments would have been leaving the same account against the same estimate, so the year-end balance is small and the payments are spread across twelve dates instead of one.

If you took dividends during the year, run a second slice for the personal side: a portion of each dividend, sized at your marginal rate net of the dividend tax credit, moved out the week the dividend is paid. Same habit, applied to the layer nobody withholds on.

What the account is for, and what it is not

A plain corporate savings or chequing account at the same bank, boring on purpose. Two constraints keep it useful. Do not invest the balance: investment income earned inside the corporation is taxed differently from active business income, and enough of it grinds the small-business limit — which moves the rate the estimate was built on — all to buy a return you will not notice on a four-month float.

And the balance is still the corporation’s money. Moving it to your personal account is a dividend or a salary with its own tax, or it lands in your shareholder-loan account and has to come back. A corporate tax account is not a personal emergency fund wearing a different label.

What Cadence does

We calculate the quarterly number rather than leaving you to estimate it: year-to-date profit from the books, the adjustments that separate book profit from taxable income, your actual combined rate, and the instalments already paid against it. It goes out with the quarter’s figures, so the balance-due date is not the first time you see the amount. Instalments get rebuilt when the year changes shape instead of coasting on last year’s base, and the corporate estimate and your personal instalments are set in the same file. That is the year-round planning piece — the quarterly estimate lives there rather than in the annual-returns package; the corporate return and instalment schedule it feeds are business and corporate tax. Which package you are on is set at the estimate.