Most employed Canadians have their income taxes deducted at the source when they receive a pay cheques. The employer then remits this amount to the government.
But some Canadians must pay their taxes by installment. This includes retirees and the self-employed, primarily.
Where tax owing on the current year, or either of the past 2 years, is greater than $3,000, the taxpayer must pay in installments. This does not mean their total tax payable is $3,000. It means that the amount they owe is $3,000+ more than what they have paid so far.
If the taxpayer is required to make instalment payments, they will be owed on …
COVID: For 2020 only, the June 15 and September 15 payments have been pushed to September 30.
If their payments end up being more than what is owed come year end, they will receive a tax refund once they file.
If they owe more than what was paid for by installments, the taxpayer must pay the additional amount when they file.
The amount owed for each installment will be determined by the government. They will then mail you a reminder in February and August with the amounts and due dates (listed above).
There are three different options for paying installments.
On the first installment reminder, you will receive a no calculation option. It will list payments based on your most recent tax return.
The government will not charge penalties or interest if the amount is too low.
This is the easiest and simplest option and works best for taxpayers who have close to the same income, deductions and credits each year.
You will use your previous years tax return to determine your payments (for 2020 installments you would use 2019).
The government provides an easy to use worksheet to help determine the amounts using information on your 2019 Notice of Assessment, which you should have received after filing your taxes. You can also use your tax and benefit return.
If you use this method, the government will charge interest or penalties if the amount you calculated was too low.
This is best for taxpayers whose income, credits and deductions will be similar to the prior year and different from two years ago.
This method will use your current years estimated tax owing, Canada Pension Plan (CPP) contributions and Employment Insurance (EI) premiums.
Like the prior year method, the government will charge interest or penalties if the amount you calculated was too low.
This is best for taxpayers whose income, credits and deductions are significantly lower than the prior two years.
For help calculating your installment payments and choosing the best method for you, contact us today.