Year End Planning Opportunity:  Minimize Personal Instalments

For 2008 and subsequent years, the quarterly instalment threshold, used to determine whether instalments are payable by individuals was increased from taxes owing of $2,000 ($1,200 for Quebec filers) to taxes owing in excess of $3,000 ($1,800 for Quebec filers). Farmers and fishers, who are currently required to make one instalment payment by December 31, will not be required to make an instalment payment at all if the actual tax owing for either of the two preceding years does not exceed $3,000 ($1,800 in Quebec).

Given the events in the marketplace in late 2008, the requirement of the December 15 instalment payment should be reviewed immediately.

With the devastation wreaked upon the marketplace in October, Canadians may find that their overall income from investments or even employment and business activities may have taken a hit in the last quarter. Commission-based financial advisors in particular may find themselves in this boat this year. But there may be a bit of good news to offset the bad, at least from a tax point of view, if you are a quarterly instalment payer.

Many people don't realize that instalments remitted to CRA (often by post-dated cheques) can be adjusted to actual income earned in the year. Others don't know that the CRA "billing method" of collecting quarterly instalments is only one of three methods of payment. The other two are optional:

• Current-Year Option. Under this option, the taxpayer's income tax liability for the current taxation year is estimated then one-quarter of the estimated amount over $3000 is due on each of the four due dates: March 15, June 15, September 15 and December 15. (Farmers and fishers must only make one instalment payment, on December 31 on 2/3 of the estimated taxes owing)

• Prior-Year Option. Under this option, the first two instalments are estimated at one-quarter of the taxes due in the second prior year (since the prior year's return is not available when these instalments are due) and the last two instalments are calculated at one-half of the excess of taxes due in the prior year over taxes due in the second prior year.

If you know your client's income will drop this tax year over last, write a letter to CRA to recalculate the instalment payment base and return the last post-dated cheques.

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