Quarterly Instalments – Avoid Remitting Too Much!

Barbara Britto

Many taxpayers are receiving electronic notices from the CRA reminding them that March 15 is coming up. That’s the day that the first quarterly tax instalment remittances are usually due for the new year, but because that day falls on a Saturday this year, the due date is March 17. The issue in a cash strapped world, is whether you really need to make these payment. Here is a backgrounder to guide you:

Who Must Pay? The taxpayer must pay tax instalments for next year’s taxes if the net tax owing for the current tax year and in the prior two tax years was more than $3,000. If you miss making the payment, you will be charged interest, which can be expensive. That interest cost is based on the prescribed interest rate in the quarter the remittance was due, compounding daily. 

What’s the Due Date? Tax instalments are due by the following dates (except farmers and fishers who have one due date on December31): March 15, June 15, September 15 and December 15.

There are Options. Considering the changing economy there may be a forecast of decreased revenues and quarterly instalments can be revised. There are three options to calculate the instalment payments which could eliminate or reduce the amounts that are required to be paid:

               - No Calculation option

               - Prior year option

               - Current yar option       

The No Calculation Option is best if income, deductions and credits stay about the same from year to year. CRA will direct you in MyAccount to pay the amounts shown in box 2 of all the instalment reminders they send you. Specifically each amount in that box is equal to one quarter of the total of the net tax owing on your 2023 tax return and one quarter of any CPP contributions and EI premiums payable. If these payments are made on time as per the CRA calculations, there will be no interest charges even if you owe more when you file your return.

The prior-year option is best if the 2025 income, deductions, and credits will be similar to the 2024 amount but significantly different from those in 2023. The amount of the instalment payments is based on the information from the tax return for the 2024 tax year.   You will pay one quarter of the total of the 2024 net tax owing and one quarter of any CPP contributions and EI premiums payable on each due date.

If the payments are made in full by the 2025 due dates, there will be no penalty or instalment interest unless the estimated amounts were too low. 

Current-year option. Under this option you will pay one quarter of the total of the estimated 2025 net tax owing and one quarter of any CPP contributions and EI premiums payable on each due date.

The current year option is best if the 2025 income, deductions and credits will be significantly different from those in 2024 and 2023.   The amount of the instalment payments is based on the estimated current year revenues.

Planning Matters. Monitoring the required level of quarterly instalment payment requirements forms a part of wise tax, investment and cash-flow planning practice and should be carefully followed by taxpayers and their advisors.

If the amount on the instalment notice is too large, the taxpayer may use the current-year option to reduce the payments (the CRA calculation is based on the prior-year option).

However, if the amounts calculated by the taxpayer are insufficient or instalment payments are required but completely ignored, then interest and penalties may accrue. On each due date, the required payment is the amount that is needed to bring the payments current as of that date. 

Thus, if a taxpayer determines later in the year that instalment payments have been overpaid, the current instalment amount may be reduced to the year to date balance outstanding. Likewise if the current payment was insufficient, pay the next one early or make an overpayment to reduce interest costs.

Bottom Line. Paying the correct taxes on time will help the taxpayer avoid interest charges and penalties. Overestimating the tax payable may result in unnecessary cash payouts which could be invested.

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