Why do I have to pay Tax Installments on my Personal Income Taxes?

//Why do I have to pay Tax Installments on my Personal Income Taxes?

Why do I have to pay Tax Installments on my Personal Income Taxes?

Every couple of months at Catherine Barrie Accounting office we get this question. “Why do I have to pay Tax Installments on my Personal Income Taxes”. 

We receive these telephone calls several times a year. When the installment reminders are mailed from CRA about why clients have received notices for personal income tax installments.

If you are employed at a job where you receive a T4, your employer deducts income taxes (along with Canada Pension Plan and Employment Insurance) from your pay cheque on an on-going basis. The taxes they deduct and remit for you are calculated based on a table provided by CRA. The taxes for the year are estimated and are meant to match the amount of taxes you will be responsible for paying when you file your taxes.

Other income that may have some taxes deducted at source are pensions and monies taken out of your RRSP’s. There may not be enough tax deducted on these, but some may be deducted.

When you have other sources of income, such interest income, self-employment income, dividend income, rental income, spousal support, etc. there is no income tax deducted at source and you are responsible to remitting the taxes on these amounts yourself.

If you decide to have taxes deducted from your OAS or CPP we have forms available for you to request that happen.

When you owe $3,000 in taxes two of the last consecutive three years (and that includes this year), CRA requires that you make installment payments. Therefore, if you owed $3,000 for 2018 or 2019 taxes and you feel that you will owe that much for 2020, you are supposed to know enough to make installments.

There are several different ways to calculate your installments.  Please know our office is happy to help, you can always give our Catherine Barrie Accounting office a call at 705-719-7778

Generally, installments are due March 15, June 15, September 15 and December 15. The installments are paid in the year the income creating them will also be taxed.

If something changes with your income, you may be in a different position for the next tax year. If you don’t make the installment payment, and don’t end up owing the $3,000 or more in taxes, then nothing will happen to you.

If you don’t make the installment payments and you do end up owing $3,000 or more, CRA may charge you installment interest. Installment interest is calculated back to the time you SHOULD have made the installment. CRA’s interest rate changes annually but is generally around 5-6%. Here is the CRA website page discussing this topic themselves please feel free to read the following CRA post.  

There are many ways to make your installment payments. One of the easiest is through your on-line banking. CRA can be set-up as a vendor and your SIN is your invoice number. 

 

As always if you have any Tax Questions you can always give our office a call.

Please just ask for me, Cathy. I am always happy to assist, and look forward to hearing from you.

 

Catherine Barrie CPA

 

 

2020-09-21T13:05:11+00:00