March 15: The Ides of March & Tax Instalment Deadline

Beth Graddon & Evelyn Jacks

March 15 is coming up quickly, and it’s a date that the ancient Romans considered the deadline for settling debts. It’s also an upcoming quarterly tax instalment deadline with the CRA . Our modern day tax departments looks to have their debt paid in advance from certain taxpayers.  Here is what you need to know:

Taxpayers who upon completion of their annual tax returns, have a net tax owing of more than $3,000 in either the current tax year and the previous tax year or the second previous tax year are required to pay their taxes by making instalment payments. For residents of Quebec, the threshold is $1,800.

For farmers and fishers, instalments are only required if the net tax owing is $3,000 in the current year and both of the prior two years.  Farmers and fishers are permitted to make one instalment of at least two-thirds of the estimated taxes for the year. This payment is due by December 31 of the taxation year. All others are required to remit the estimated taxes in quarterly instalments.

Due dates are:

• March 15
• June 15
• September 15
• December 15

Methods of Calculating the Amount of Instalment Payments Required.  There are two methods of estimating the instalment amount; these being alternative methods to CRA’s “billing method”:

Current-Year Option . Under this option, the taxpayer's income tax liability for the current taxation year is estimated and, if the estimate exceeds $3,000, then one-quarter of the estimated amount is due on each of the four due dates.

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.

Example:

In the prior two years, Peter's taxes owing when he filed his return were as follows:

Last year: $3,500

Year before last: $4,000

At what amounts would Peter's quarterly instalment payments be under each option?

Using the Prior-Year Option, Peter’s:

• First two instalment payments are $1,000 (= $4,000/4)
• Third and fourth instalments are $750 each (= ($3,500 - $1,000 - $1,000) / 2).

If Peter estimates that his current year tax liability will be $3,400 he may use the current-year option and make instalment payments of $850 ($3,400/4) each quarter.

What’s changed this year?  Taxpayers may have suffered through significant income declines due to the pandemic, marital change, illness or death of a loved one. These individuals and households may no longer be in an instalment profile. 

That would be good news.  Advisors will want to be sure to give timely tax advice on this issue.  It can exponentially improve cash flow or enable taxpayers to pay off debt or stay invested. 

Additional Educational Resources: This information was sourced from Knowledge Bureau’s comprehensive tax library, EverGreen Explanatory Notes. This is an important resource to have at your fingertips, especially during this complex tax year. Until March 31, you can get a 3-month subscription for only $195. Subscribe today!