Tax instalments are payments made throughout the year to cover taxes that would otherwise be due when you file your annual tax return. You pay these instalments to the CRA throughout the year while earning income.
Crowe MacKay's tax experts answer common questions about personal income tax instalments below.
1. 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 previous calendar years.
2. Why do I Have to Pay Instalments?
If you receive income that has no or insufficient tax withheld, you may have to pay tax by instalments. This can happen if you receive:
- rental income,
- investment income,
- self-employment income, or
- certain pension income.
3. 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, deduction, and credit amounts will be similar to those of the immediately preceding year but significantly different from those in the calendar year before that; or
- current-year option, this option is best for you if your year income, deductions, and credits will be significantly different from those in prior years.
Choosing the best instalment payment option for your situation should result in you not overpaying your tax or having a large balance owing when you file your return. You do not have to tell the CRA which option you choose for your payment plan.
4. 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 above.
5. When are 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 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 of payment.
6. How and Where do I Make My Instalment Payments?
Each instalment reminder package the CRA sends includes two copies of Form INNS3, Instalment Remittance Voucher. If you need more copies, you can download it from the CRA's 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. Popular options include CRA My Payment 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. Please remember to write your social insurance number on the back of your cheque or money order to help CRA process your payment correctly.
7. 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.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
