Minimize The December 15 Quarterly Tax Instalment

December 15 is just around the corner and that’s the time seniors and others who do not have tax deducted at source make their final quarterly tax instalment remittances.

Farmers do so once by December 31, based on their net income for the year. Did income drop in 2013? If it did, the final instalment may not be necessary. Now is the time to make the determination.

Starting in 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) in the current or either of the two immediately preceding tax years.

There are three methods by which CRA will accept those tax remittances from you. These are:

• The current-year method: You can pay your estimated taxes for the current year by paying 25% of that amount on each of the instalment due dates.
• The prior-year method: You can pay one-quarter of the taxes due in the prior year on each of the instalment dates.
• The no-calculation option: Use the instalment notices that CRA sends out and pay the amount specified. CRA calculates the mount due for the first two instalments as one-quarter of the taxes payable in the second prior year and the last two instalments as one-half of taxes payable in the prior year less the first two instalment payments.

Example

Gertrude’s income consists of Old Age Security, CPP and investment income. Her taxes due in 2011 were $4,400. In the 2012 tax year her taxes due were $4,000. Per the CRA instalment notices she her instalments were:

• March and June: $1,100
• September and December: $900

Gertrude made her first three instalments for 2013 as required (total $3,100) and found in December that her investment income for the year had dropped so that her balance due for 2013 would only be $3,500. Since she has already paid $3,100, she can reduce her December instalment to $400.

You can also reduce your withholding for the Old Age Security Recovery Tax (your clawback) with a T1213 (OAS) Request To Reduce Old Age Security Recovery Tax at Source.

The Income Tax Estimator from The Knowledge Bureau offers a quick way to estimate 2013 taxes before your 2013 tax software is available. Try it free now.

Excerpted from Essential Tax Facts. © Knowledge Bureau, Inc. All rights reserved.