Final Tax Instalment for 2017:  Help Clients Budget for Savings and Holidays

Do you need more cash flow before Christmas?  It’s a great question for tax and financial advisors to ask their clients who are pensioners, divorces or proprietors.  That’s because the final quarterly tax instalment of the year is coming up soon – December 15 – and with proper planning, it might be avoided.

We call this “knowledge-based marketing”:  advisors with clients who are retired and receive pension income, or who earn rental, investment or self-employment income, may wish to send a note to discuss the final 2017 income tax instalment this week.   While the deadline is not until December 15, 2017, running the numbers now will help clients  budget for investments they need to make – RESPs, RDSPs, RRSPs and TFSA, or, if you have good news for them, holiday gifts and winter travel plans.  Your proactive efforts may even help to free up some much-needed cash to pay off credit cards before the holidays for a change!

Who need to make instalment payments?  Taxpayers who have net tax owing for 2017 that is above the threshold for their province or territory ($1,800 in Quebec and $3,000 everywhere else), and their net tax owing for either 2015 or 2016 was above that threshold. Instalment amounts are based on an estimate of how much tax they will owe on their return for the 2017 tax year, but the final instalment of the year may be higher or lower than anticipated, depending on their actual income in 2017.

If their income is lower than predicted, the total amount due in income tax will also be lower. That means that they may not owe as much on their last instalment as was calculated at the beginning of the year.   Remember, you must pay only the correct amount of tax, but no more.

Conversely, if actual income is higher than predicted, your clients may owe more in tax. That is a good time to discuss year end charitable donations, offsetting capital gains with losses (outside of a registered account) or making more RRSP contributions (if age eligible with contribution room).

It’s important to avoid interest charges, if taxes will exceed what CRA has billed the client in instalment remittance requirements.  Therefore, make those instalment payments on time:  December 31st for farmers; December 15 for everyone else.

Additional educational resources: Knowledge Bureau’s Fall CE Summits (November 21-29 in four cities across the country) focus on year-end planning for investors and small business. Sign up by October 31 and benefit from reduced tuition for early registration.

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