Income Drop in 2021? Adjust September Instalment

Evelyn Jacks

Do you need to make the quarterly tax instalment remittances on September 15? Or, will you be able to keep your money invested?  It’s a question your clients may have, especially if their income dropped in 2020 tax filing year.  Tax, bookkeeping and financial pros can provide an important service with an accurate income tax estimation for tax year 2021. Fortunately, Knowledge Bureau’s Income Tax Estimator can help, too.  Here are the rules to observe:

Taxpayers who have a net tax owing of more than $3,000 in either the current tax year and the previous tax year or the second previous tax year are required to pay their taxes by making instalment payments. For residents of Quebec, the threshold is $1,800.

For farmers and fishers, instalments are only required if the net tax owing is $3,000 in the current year and both of the prior two years.  Farmers and fishers are permitted to make one instalment of at least two-thirds of the estimated taxes for the year. This payment is due by December 31 of the taxation year. All others are required to remit the estimated taxes in quarterly instalments.

Due dates are:

  • March 15
  • June 15
  • September 15
  • December 15

There are two methods of estimating the instalment amount as an alternative to CRA’s “billing method”:

  • Current-Year Option. Under this option, the taxpayer's income tax liability for the current taxation year is estimated and, if the estimate exceeds $3,000, then one-quarter of the estimated amount is due on each of the four due dates.
  • Prior-Year Option. Under this option, the first two instalments are estimated at one-quarter of the taxes due in the second prior year (since the prior year's return is not available when these instalments are due) and the last two instalments are calculated at one-half of the excess of taxes due in the prior year over taxes due in the second prior year.

Additional educational resources: Knowledge Bureau’s Income Tax Estimator can help, and it’s part of a suite of sophisticated tax and financial calculators. Knowledge Bureau’s suite of calculators is your Client Relationship Toolkit. Designed to provide you with answers to trigger questions your clients have about tax efficiency and the important financial decisions they need to make. The calculators follow the four elements of Real Wealth Management™—Accumulation, Growth, Preservation, and Transition—but can also be used to fill random knowledge gaps. Used in order, they will support consistent client interview processes throughout the year. One month and one-year subscriptions are available. Check out the demo here.