Tax Brief: Payment of Personal Tax Amounts

There’s a misconception that instalments are paid in advance. Rather, they are tax payments made during the calendar year in which income is being generated, for which the tax is required to be remitted to the Canada Revenue Agency (“CRA”).

Who must pay tax via instalments:

In most provinces, the CRA won’t require taxpayers to make instalments if their net tax owing is $3,000 or less for (a) the current year and (b) in the past two tax-years. If net tax owing is greater for both of these period-tests, instalments will be required quarterly.

How are tax instalment amounts computed:

Tax instalments are calculated based on total balances remitted to the CRA. This includes tax owing on income earned, CPP contributions and employment insurance premiums. There are three ways to calculate tax instalment amounts:

  1. No calculation option: These are the amounts the CRA lists in the tax instalment letter they send you, based on your latest assessed tax return

  2. Prior-year option: If your current-year tax situation will be relatively similar to the prior-year tax situation, you may pay via tax instalments the same amount of tax you paid in the latest assessed tax return.

  3. Current-year option: If your current-year tax situation will be significantly different than that of prior-year, you may pay tax instalments based on the projected current-year tax amounts.

How much tax instalments must a taxpayer pay:

The default option is to pay the amounts listed in the tax instalment notice sent by the CRA. If a taxpayer determines that a different tax instalment method is more beneficial for them, they can elect to use any other method without notifying the CRA. Regardless of the method chosen, you must make the instalments by their due dates otherwise, the CRA can charge late instalment interest and if interest is greater than $1,000, penalties as well.

Questions in how the above matter may relate to you? Reach out to Blumenfeld Woznica & Co to see how this matter may impact your specific accounting and/or tax situation.

Disclaimer

This publication is provided as an information service and may include items reported from other sources. We do not warrant its accuracy. This information is not meant as account/tax opinion or advice.

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