Getting familiar with personal tax instalments
Tax instalments are payments made throughout the year to cover taxes that would otherwise be paid all at once in your annual tax return of the following year. You pay these instalments to the CRA throughout the year while earning income.
Crowe MacKay’s tax expert, Robert Flux, answers common questions about personal income tax instalments below.
Who has to pay instalments?
You have to pay your income tax by instalments for the current year if your net tax owing for the current year will be more than $3,000 AND your net tax owing was more than $3,000 in either of the two calendar years before the previous year.
Why do I have to pay instalments?
If you receive income that has no tax withheld or does not have enough tax withheld for more than one year, you may have to pay tax by instalments. This can happen if you receive rental, investment, or self-employment income, certain pension payments, or income from more than one job.
What are my instalment payment options?
You have three instalment payment options:
- no-calculation option, this option is best for you if your income, deductions, and credits stay about the same from year to year);
- prior-year option, this option is best for you if your current calendar year income, deductions, and credits will be similar to your prior calendar year amount but significantly different from those in the calendar year before that; or
- current-year option, this option is best for you if your current calendar year income, deductions, and credits will be significantly different from those in prior years.
If you choose the best instalment payment option for your situation, you will not overpay your tax during the year or have a large amount of tax to pay when you file your return. You do not have to tell the CRA which option you choose for your payment plan.
I received an instalment letter and/or reminder from the CRA. Do I have to pay the instalments that they suggest?
No, instalment reminders sent by the CRA are always based on the no-calculation option. You can pay the instalments based on the option you choose as discussed in question 3 above.
When are the instalments due?
The quarterly instalment payments are due March 15, June 15, September 15, and December 15. When a due date falls on a Saturday, a Sunday, or a holiday recognized by the CRA, they consider your payment to be paid on time if received or if it is postmarked on the next business day. Payments you make in person at your financial institution, or electronically are considered received by the CRA on the date that you make them.
How and where do I make my instalment payments?
Each instalment reminder package the CRA sends includes two copies of Form INNS3, Instalment Remittance Form. If you need more copies, you can download from the CRA website. To make your instalment payments, you have three options:
- Electronically – There are now many different ways you can make electronic payments to the CRA. Some more popular options include CRA MyPayment online, online banking, and pre-authorized debit through CRA MyAccount.
- At your financial institution - You can make your payment free of charge at your branch of a Canadian chartered bank, caisse populaire, or credit union. You must have Form INNS3 from the CRA in order for the institution to accept the payment. Give Form INNS3 to the teller, who will detach and keep the payment section of the form, and who will stamp and give the rest to you as a receipt.
- By mail - You can send a cheque or money order payable to the Receiver General, and a completed Form INNS3, to Canada Revenue Agency. Note - Please write your social insurance number (SIN) on the back of your cheque or money order to help CRA process your payment correctly.
What if I don't remit the right amount of instalments?
Instalments paid to the CRA can be charged interest and penalties if you fail to pay your required tax instalments or have paid an insufficient amount.
Specific professional advice should be obtained prior to the implementation of any suggestion contained in this article. Contact your Crowe MacKay advisor for more information.
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