If you’re an employee and your employment is your main source of income, there’s a good chance you won’t have to make quarterly instalment payments since your employer is required to withhold payroll deductions.
But if you earn income that doesn’t have tax withheld on it, like self-employment, rental or investment income, or you made a capital gain in the past year, you might have to make instalment payments.
Instalments usually arise if the tax you owe in the previous year is more than $3,000 (before existing instalment payments).
By making quarterly payments, you’re paying your taxes throughout the year, instead of paying a lump sum by the April 30 filing deadline.
That way you’re paying your taxes like someone who has taxes withheld from their paycheque.
How do I know I have to pay tax by instalments?
The CRA will look at your prior-year tax return and send instalment reminders to you.
The reminder is based on prior returns. Your instalments will be due quarterly.
The dates are:
- March 15
- June 15
- September 15
- December 15
The CRA will send you reminders when they’re due, but it’s still up to you to remember to pay them - otherwise you’ll face interest and penalties.
You can find the amount you owe and the reminders online in your CRA My Account.
If the instalment deadline falls on a weekend or holiday, the CRA considers it to be on time if it’s received by the next business day.
You can pay online on CRA My Account, through your financial institution or send the CRA a cheque as long as it’s postmarked by the instalment deadline.
You can also choose to make pre-authorized payments.
Instalment payments for farming and fishing
If your main source of self-employment income is from farming or fishing, you only make one instalment payment.
It’s due on December 31st if you owe more than $3,000 in tax.
You’ll receive an instalment reminder in November.
Since your tax instalments are determined by the balance you owe on your tax return from the prior year, if your finances change and you end up making more money throughout the year and owing more tax, you’ll still have to pay that amount by April 30th of the following year.
Even if your business is cyclical and your income fluctuates greatly throughout the year, you must meet your instalment obligations.
Make sure you have enough money in the bank to make those payments.
How do I calculate my instalment payments?
There are three methods you can use to calculate your instalment payments.
No-calculation option – If your income, deductions and credits are about the same from year to year, the CRA determines the amount of your instalment payments based on the information in your latest assessed tax return.
Prior-year option – If your 2019 income, deductions and credits will be similar to the prior-year amount, but different from 2017, you can determine the instalment payments based on your tax return for 2018.
Current-year option – If your 2019 income, deductions and credits will be different from those in 2018 and 2017, you can determine the payments based on the current year net tax owing.
Book an appointment with FBC
FBC works with Canadian farmers and small business owners to minimize their income taxes and maximize their assets.
Contact us for a no-cost, no-obligation consultation so we can explain how you can make sure you’re taking advantage of all the tax-saving opportunities available to you.