Make Sure March 15th Instalment Is Right

Will your clients overpay their March 15th instalment payment?  It is important that they don't, particularly if their income has taken a hit over the past year.  Canadians taxpayers may find that due to employment layoffs or possibly due to their portfolio tanking,  overall income may have taken dropped off.  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 $3,000 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 income will drop this tax year over last, write a letter to CRA to recalculate your instalment payment base and return the last post-dated cheques.

Note that, for 2008 and subsequent years, the instalment threshold for individuals is $3,000 ($1,800 for Quebec filers). You will not be required to make an instalment payment at all if the actual tax owing will not exceed $3,000 during the year ($1,800 in Quebec).

Suggested Educational Resources: Learn more about tax planning in these Knowledge Bureau courses:  Introduction to Personal Tax Preparation, Tax Preparation for Proprietorships or subscribe to EverGreen Explanatory Notes for more information.