November 10, 2022
By: Mike Vorona, Junior Associate, Collections, Farber Solutions
Tax instalments apply to taxpayers who, for one reason or another, owe tax at the end of the year.
If you are an individual who is self-employed or have multiple streams of income and have not had enough tax deducted at source for a given year, you may be required to make instalment payments. This is especially true for taxpayers who earn income from rental properties, sole proprietorships, investments, pensions, and second jobs. The additional income only gets deducted as per the source it comes from without consideration or knowing that you receive income from another source.
When are tax instalments required?
Tax instalments are required if your net tax owing is more than $3,000 in two of the three previous years. The Canada Revenue Agency (CRA) will send instalment reminders specifying the dates and amounts to be paid based on your latest return.
It’s important to note that if your taxes owing will not exceed the $3,000 threshold for the current year, you may disregard the notice as you will not be obligated to pay tax instalments in this year.
How are tax instalments calculated?
The CRA offers three methods for calculating your tax instalment payments:
- Non-calculation option determines instalments based on the information from your latest assessed tax returns. This option is used by the CRA when generating instalment reminders and is best suited for consistent yearly income.
- Prior-year option determines instalments based on your net tax owed from last year’s return. This option is best suited for income that is consistent with last year’s, but different from years before last.
- Current year option determines instalments based on your estimated current year amounts. This option is best suited for income that fluctuates and is expected to be significantly different from prior years.
Payments are made every quarter and are due on the 15th of March, June, September, and December specified in the CRA schedule.
What happens if I don’t pay on time?
Interest and penalties may be charged on late or insufficient payments if it has been determined that a taxpayer was required to make instalments based on up-to-date filings.
Any instalments paid throughout the year must be claimed on line 47600 of your tax return. If you are unsure of payments made, amounts can be found on either:
- Form INNS1 (Instalment reminder) received in February and/or in August.
- Form INNS2 (Instalment summary) received in February.
At Farber Tax Solutions we have first-hand experience with resolving your tax issues to ensure your rights are fully protected and you get the best possible outcome. Contact us today for a free, no-obligation consultation to find out how we can help you.