CRA to Send Instalment Payment Notices in August: Your Tax Remittance Options

You’re not in the clear yet! In August, the CRA will be notifying individuals who will be required to remit an instalment payment by the September 15 and December 15 deadlines. Even if you weren’t required to make an instalment payment on June 15 or earlier this year, you might still be subject to paying in instalments. This means that now is the time to review whether you need to save throughout the summer for yourself or for the taxman!

You may receive this reminder, indicating requirement to pay in instalments for the last two instalment deadlines this year if you’re retired, an investor, self-employed, or if your employer is not deducting sufficient tax to cover your balance due (in cases where your net tax owing for the prior year was above the $3,000 threshold, or $1,800 in Quebec). But, contributing to your RRSP or increasing taxes withheld from other revenue sources could actually take you out of the instalment profile, which is why you need to know all your instalment calculation options.

Typically, there are three options for calculating your instalment payments. You can pay the amounts specified on your instalment notice (received previously) or if this is the first notice you’ve received this year, you may use the prior-year option, or the current-year option. To use the prior-year option, calculate your net tax owing for 2017, and include CPP contributions payable and voluntary Employment Insurance contributions payable. If you choose to use the current-year option, you need to estimate your 2018 net taxes due instead.

The Income Tax Estimator is a convenient tool to estimate your 2018 tax bill. If your estimated taxes payable for 2018 are less than the $3,000 threshold, you will not receive a notice in August indicating you must make instalment payments this year. After determining your net tax due using both methods, you can use the calculation option that allows you to pay less at instalment deadlines if you wish.

Using either of the methods outlined above, 75 percent of your total net tax should be paid on September 15, and the remaining 25 percent on December 15, 2018. If there is a discrepancy when you file your 2018 return in 2019, any remaining balance must be paid then, or the CRA will refund any overage paid.

Failing to respond to this instalment payment notification can lead to penalties and interest applied on arrears, so it’s time to start thinking about this now if you’re likely to be a recipient of a notification this August.

A tax advisor can help you determine if this will be applicable to you, so you can ensure you put the funds aside to pay on the instalment deadlines as required by the CRA. Additionally, a professional like a Distinguished Financial Advisor – Tax Services Specialist, can help you reduce your net balance due, reducing or eliminating instalment payments by increasing the tax withheld from various income streams, including Old Age Security and Canada Pension Plan Benefits, Employment Income, RRSP, or employer-sponsored pension benefits. This is why RRSP contributions make so much sense. Your summer cash flow can be greatly impacted with tax-efficiency.

Additional educational resources:

Self-employed and looking to enhance your education about relevant tax issues? Try Knowledge Bureau’s T1 Professional Tax Preparation – Proprietorships. A free trial is available. Also be sure you register to attend the Fall CE Summits, focusing on year-end planning for investors and small businesses. Subscribing to our package of tax calculators can also help you plan ahead as a business owner, or if you are a professional providing personal and business tax planning services to clients.

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