What Are Tax Instalments?
Pay-As-You-Go Tax
| Concept |
Details |
| Why required |
Pay tax throughout year |
| For whom |
Self-employed, investors, pensioners |
| Instead of |
Single large payment at tax time |
| Avoids |
Large April tax bill |
Why CRA Requires Instalments
| Reason |
Details |
| Employees |
Tax deducted each paycheque |
| Others |
No regular deductions |
| Solution |
Quarterly payments |
Who Needs to Pay Instalments?
The $3,000 Rule
| Requirement |
Details |
| Current year |
Net tax owing >$3,000 |
| AND either prior year |
Net tax owing >$3,000 |
| Quebec |
$1,800 threshold |
Common Situations
| Who |
Why |
| Self-employed |
No employer deductions |
| Significant investment income |
Dividends, rental, gains |
| Pensioners |
Some pensions don’t withhold |
| Multiple income sources |
Tax may be owing |
Net Tax Owing
| Calculation |
Details |
| Total tax |
Before deducting source deductions |
| Minus |
Tax already withheld |
| Equals |
Net tax owing |
Example
| Item |
Amount |
| Total tax owed |
$15,000 |
| Tax withheld at source |
$10,000 |
| Net tax owing |
$5,000 |
If >$3,000 two years in a row → instalments.
Instalment Due Dates
Quarterly Schedule
| Payment |
Due Date |
| Q1 |
March 15 |
| Q2 |
June 15 |
| Q3 |
September 15 |
| Q4 |
December 15 |
If Date Falls on Weekend
| Rule |
Next business day |
| Saturday |
Monday |
| Sunday |
Monday |
| Holiday |
Next day |
Three Calculation Methods
Method 1: CRA Calculation
| How |
Details |
| CRA sends |
Instalment reminder |
| Amount |
Based on prior years |
| Easiest |
Just use their number |
Method 2: Prior Year
| How |
Details |
| Take |
Last year’s tax owing |
| Divide by 4 |
For quarterly |
| Pay |
That amount each quarter |
Method 3: Current Year Estimate
| How |
Details |
| Estimate |
This year’s income |
| Calculate |
Expected tax |
| Divide by 4 |
Pay quarterly |
Which Method?
| Situation |
Best Method |
| Income similar |
CRA or prior year |
| Income higher |
Current year |
| Income lower |
Current year |
| Not sure |
CRA calculation |
CRA Instalment Reminders
What You Receive
| Reminder |
Timing |
| February |
Before March payment |
| August |
Before September payment |
What It Shows
| Information |
Details |
| Amounts due |
By date |
| How calculated |
Explanation |
| Ways to pay |
Payment methods |
No Reminder?
| If CRA Doesn’t Send |
Action |
| May not need instalments |
Check threshold |
| CRA calculation |
Using online account |
| Your responsibility |
Even without reminder |
How to Pay Instalments
Payment Methods
| Method |
How |
| Online banking |
Add CRA as payee |
| CRA My Payment |
Credit/debit card |
| Pre-authorized debit |
Set up with CRA |
| Mail cheque |
To CRA |
Setting Up Online Banking
| Step |
Action |
| 1 |
Log into bank |
| 2 |
Add payee: CRA Federal |
| 3 |
Account number = SIN |
| 4 |
Pay amount by due date |
Account Number for Payments
| Payment |
Account Number |
| Federal instalments |
Your SIN |
| GST/HST instalments |
BN (business number) |
| Provincial |
Varies |
Interest and Penalties
If You Don’t Pay
| Consequence |
Details |
| Instalment interest |
Charged on late amounts |
| Rate |
CRA prescribed rate |
| Compounds |
Daily |
Current Interest Rate
| Rate |
~8-10% (varies) |
| Check |
CRA website for current |
| Compounds |
Daily |
Example Interest
| Late Amount |
$5,000 |
| Days late |
90 |
| Rate |
8% |
| Interest |
~$100 |
Reducing Interest
| If You Pay |
Result |
| Some but not all |
Partial interest |
| Extra earlier |
Offsets later shortfall |
| Current year accurate |
May reduce |
Quebec Differences
Provincial Instalments
| Quebec |
Details |
| Threshold |
$1,800 |
| Separate |
From federal |
| Different schedule |
May vary |
| Revenu Québec |
Handles |
Other Provinces
| Province |
Requirement |
| Combined |
With federal |
| No separate |
Provincial instalments |
| Except Quebec |
Own system |
Strategies
Strategy 1: Match to Income
| When Income Varies |
|
| Q1 low income |
Pay less |
| Q2 high income |
Pay more |
| Match |
To actual expected |
Strategy 2: Pay CRA Amount
| Always Safe |
|
| Pay |
What CRA suggests |
| No interest |
Even if overpay |
| Get refund |
At tax time |
Strategy 3: Current Year Estimate
| When Beneficial |
|
| Income lower |
Than prior year |
| Cash flow |
Need the money |
| Document |
Calculations |
At Tax Time
Instalment Credit
| On Return |
|
| Line 47600 |
Total instalments paid |
| Reduces |
Tax owing |
| Refund |
If overpaid |
Tracking Payments
| Keep Records |
|
| Confirmation numbers |
From payments |
| Dates paid |
When |
| Amounts |
How much |
Special Situations
First Year Self-Employment
| Situation |
Rule |
| First year |
Usually no instalments |
| Second year |
May start |
| Third year |
Based on prior |
Retirement
| Situation |
Options |
| Pension income |
Request withholding |
| OAS/CPP |
Can request withholding |
| May avoid |
Instalments |
Moving Provinces
| Situation |
Treatment |
| Tax rate change |
Estimate new province |
| Quebec special |
May need provincial |
Common Questions
Do I Have to Pay Instalments?
| Check |
Action |
| CRA reminder? |
Probably yes |
| Prior years >$3,000? |
Probably yes |
| No reminder |
Calculate yourself |
What If I Over-Contribute to RRSP?
| Scenario |
|
| Reduce tax |
Through RRSP |
| Lower instalments |
Maybe |
| Document |
Your reasoning |
Can I Stop Paying Instalments?
| If |
Action |
| Income drops |
Adjust payments |
| Income stops |
May stop |
| Keep records |
Justify to CRA |
Summary
Key Points
| Rule |
Remember |
| $3,000 threshold |
Two years |
| Quarterly payments |
Mar, Jun, Sep, Dec |
| Interest if late |
Prescribed rate |
| Three methods |
Calculate yourself |
Checklist
| Task |
Done |
| Check if required |
☐ |
| Set up payments |
☐ |
| Mark due dates |
☐ |
| Keep records |
☐ |