Tax installments are prepayment of your taxes. Instead of paying a large or significant tax bill after submitting your return, CRA provides you with a system that allows you to complete your tax responsibilities throughout the year. This process of paying installments helps you to manage your taxes more effectively and relieves the pressure to pay large amount at once.
Who Should Consider Paying Installments?
Not everyone is required to make installment payments, CRA recommends installment payments for individuals based on a variety of factors. One must complete quarterly tax installment payments if:
Your net tax owing is more than $3000 for the current year ($1800 for Quebec residents) and also this was the situation in at least one of the two previous tax years.
If your income or earnings does not have enough tax deducted at source, then it can result in large tax liabilities when taxes are filed.
If your source of income is from farming or fishing, then you may have to pay installments.
If you have income from sources that does not deduct taxes automatically. These income sources may include:
Rental income
Self-Employment income
Investment income including: dividends, interest, or capital gains.
Income from partnership
Pension payments
Spousal support or alimony payments
Royalties received from intellectual property
Foreign income that has not been taxed.
If you have multiple jobs.
When are Installments Due?
The installments are paid quarterly on the following dates:
March 15th
June 15th
September 15th
December 15th
How Are the Installment Payments Calculated?
CRA offers three options to calculate your installment payments:
No-Calculation Option: Based on your more recent assessed tax return, CRA determines your installment. The amount of installment will be shown on the installment reminders.
Prior-Year Option: Installments are calculated based on last year’s tax owing.
Current-Year Option: Estimate your current year’s tax owing and divide it into four equal payments.
Methods of Payments:
CRA provides you with a few simple ways to make your payments:
Online Banking
By mail using remittance voucher
At financial institutions
CRA My Account.
Consequences of Missing or Unpaid Installments:
CRA charges compound daily interest on missed or unpaid installments.
The interest rate is determined quarterly and is typically the Bank of Canada’s base rate plus 4%.
Interest begins from the day the installment was due.
By keeping track of your installment requirements, one can prevent unnecessary charges as well as compliance with CRA regulations.
