Ask an accountant: Canada Revenue Agency Instalment Reminders

Francesca Giroux, CGA
For the Lakeside Leader

Starting in August the Canada Revenue Agency (CRA) sends out instalment reminders to taxpayers across the country. For those who have received this notice for the first time, an instalment reminder results when a personal income tax return is filed by a taxpayer and they owed $3,000 or more in the current year, or in either of the two previous years. If a similar tax situation is likely to occur for 2018, the CRA will send out a tax instalment notice for the 2018 taxation year requiring payments due by September 15, 2018 and December 15, 2018.

This is common for individuals who do not have tax deductions automatically taken at the source of the income such as individuals who are self-employed, those that have rental, investment, and self-employment income. Individuals who are retired and receive certain pension payments can also owe tax during a given year, along with those who have income from more than one job (i.e. multiple T4 slips) and are in a higher tax bracket than what was previously estimated by their employers.

The first instalment reminder you receive will be an estimate by the CRA of the tax payable for 2018 based on the returns filed for 2017 and 2016. Once you receive this notice you have a few options available to you. The first option is to pay the amounts specified on the notices you receive by the due dates. By doing this you will ensure that you will not receive any instalment penalties or interest by not paying the amounts required on time. If it turns out that the instalments made are more than the tax liability, the taxpayer will receive a refund upon filing their 2018 tax return.

Another option is for the taxpayer to make instalments based on the total amount of tax which was paid for the 2017 tax year. This option can be used if the individual’s income level has not changed from 2017 to 2018, and the credits/deductions are likely to remain the same, as the resulting tax liability for 2018 in this case should be very similar to 2017. A third option is for the taxpayer to estimate the amount of tax that they expect to pay for 2018 and make instalments based on that estimate (i.e. if the taxpayer expects their income level to drop from 2017 to 2018).

If you choose the second or third options listed above, you will not receive any interest or penalty charges where there is no tax payable for the 2018 tax year; however, if the instalments remitted are insufficient the CRA can impose interest charges that are compounded daily.

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Information provided is of a general nature. As each individual or company’s situation is unique, you may wish to consult with your CPA for information specific to your own needs.

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