If you had income in which tax was not withheld (or not enough was withheld), you may be required to pay tax instalments. This typically happens when you have self-employed income, income from investments or rental properties or received income from more than one job. Instalments are required if your net tax owing for the current year will be over $3,000 and the net tax owing from either of the two calendar years before the current year was more than $3,000.
If you receive an instalment letter from the Canada Revenue Agency (CRA) it will come with a suggested installment plan, this is called the no-calculation option. The CRA will calculate your installments using past years information; March and June payments are based on your second preceding year tax owed and September and December payments are based on the difference between your net taxed owed in the immediately preceding tax year and what was paid in March and June.
However there are multiple options to choose from and picking the best one for your situation can ensure that 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 but if you do not remit the right amount the CRA can charge you interest and penalties for failing to make enough instalment payments. Some general considerations in choosing the best option to meet your specific needs are listed below but you should always discuss with your tax advisor.
- If your current year of income, deductions and credits were very different from previous years then you may want to go with the ‘current-year’ option.
- If your income, deductions and credits are relatively the same as past years, then you may want to choose the ‘no-calculation’ option.
- If your previous year of income, deductions and credits were relatively the same as the current year but the second preceding year was very different then you want to go with the ‘prior-year’ option.
To pay your tax instalments, simply use one of the options listed in the instalment reminder package the CRA sends you (we have also outlined them below) and make sure you use one of the copies of Form INNS3 (Instalment Remittance form) they send you if you are paying in person or through the mail. Payments are due March 15, June 15, September 15, and December 15.
- Electronically – There are many different ways you can make electronic payments to the CRA. Some more options include CRA MyPayment online, online banking through your Canadian bank, and pre-authorized debit through CRA MyAccount.
- At your financial institution – You can make your payment free of charge at any Canadian bank where you have an account. You must have Form INNS3 for the institution to accept the payment.
- By mail – You can send a cheque or money order payable to the Receiver General with a completed Form INNS3 directly to the CRA. Tip – Write your social insurance number (SIN) on the back of your cheque or money order to help CRA process your payment correctly. If the payment date is on a weekend or holiday and you are mailing it in, the CRA will consider it paid on time if it has a post mark for the following business day.
If you have any questions or concerns on the information above, please contact the office or your Cameron Izard Snell LLP advisor.