Do You Need to Pay Income Tax Instalments?

  • instalment payments

August is second of two times during the year that the Canadian Revenue Agency (CRA) sends out instalment reminders to some taxpayers either by mail or email. This notification advises the recipients that they are required to make quarterly instalment payments and indicates the amount that is due on September 15th and December 15th.

For those who have never received these instalment reminders, or are not familiar with the concept of tax instalments, they may be surprised at receiving a notice informing them they owe money to the CRA. However, tax instalments are simply another method of paying taxes over the course of the year rather than in a lump sum when the tax return is filed.

The majority of Canadian taxpayers do not need to make quarterly instalments because they are employed by a company and may have few other sources of income. In Canada, employers are required to withhold the necessary taxes from their employees’ gross pay throughout the year. The employers are then obliged to remit that amount to the CRA to cover their employees’ taxes each month. When the time comes to file their returns each spring, the taxpayers will have been credited with the remitted payments.

instalment payments

If your net tax owing is more than $3,000 ($1,800 for Quebec residents) in both the current year and either of the previous two years, you will need to pay your taxes by instalments.

However, for those who are self-employed, have multiple jobs, or earn income from other sources like rentals, investments or pensions, there is often insufficient, or no tax deducted throughout the year.

Canada’s Income Tax Act stipulates that should any taxpayer’s net tax owing be more than $3,000 ($1,800 for Quebec residents) in both the current year and either of the previous two years, they are obliged to make instalment payments.

Instalment reminders are sent to taxpayers in February for the March and June payments, and in August for the September and December payments.

The due dates for instalment payments are:

  • March 15th
  • June 15th
  • September 15th
  • December 15th

These reminders also recommend the amount the taxpayer should pay. Paying the CRA’s recommended amount is the most straightforward way to meet the instalment obligation. However, there are alternative options. If the taxpayer’s income fluctuates from one year to the next, they may prefer to calculate their payments with either the prior-year or current-year option instead. For those who opt for one of these latter methods, there is a word of caution. Should they actually owe more than the amount remitted, the CRA may charge interest and penalties on the insufficient remittances. The interest is calculated on the unpaid amount dating back to the original due date. So at the end of the day, taxpayers may want to err on the side of caution to avoid paying unnecessary instalment interest and penalties to the CRA.

If you like more information about instalment payments, or on how we can help you or your business, contact GB Pilley & Associates Ltd., Chartered Professional Accountants at 604 926 3522.

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