Beth Graddon & Evelyn Jacks
It’s quarterly tax instalment remittance time again! But do you really need to make the payment on September 15? You should be concerned if you earn income from self-employment, pensions, rental income, or receive taxable alimony. A DFA-Tax Services Specialist™ can help. Here is what you need to know.
Where to start . Taxpayers who are required to make quarterly instalment payments will have heard from CRA by now. Every August, the CRA notifies individuals who will be required to remit an instalment payment by the September 15 and December 15 deadlines. Even if you weren’t required to make an instalment payment on June 15 or earlier this year, you might still be subject to paying in instalments, based on last year’s tax filing results. If your net tax owing for the prior year was above a threshold of $3,000, or $1,800 in Quebec, you will need to pay in advance to avoid interest costs.
Planning options. There are two ways to eliminate or reduce instalment payments. You could maximize your RRSP contribution room, or increase taxes withheld from other revenue sources like pensions, for example.
How to calculate instalments. Typically, there are three options for calculating your instalment payments. You can pay the amounts specified on your installment notice (received previously) or if this is the first notice you’ve received this year, you may use the prior-year option orthe current-year option. To use the prior-year option, calculate your net tax owing for 2018, and include CPP contributions payable and voluntary Employment Insurance contributions payable. If you choose to use the current-year option, you need to estimate your 2019 net taxes due instead.
The Knowledge Bureau’s Income Tax Estimator is a convenient tool to estimate your 2019 tax bill. If your estimated taxes payable for 2019 are less than the $3,000 threshold, you would not have received a notice in August indicating you must make installment payments this year. After determining your net tax due using both methods, you can use the calculation option that allows you to pay less at instalment deadlines if you wish.
Using either of the methods outlined above, 75 percent of your total net tax should be paid on September 15, and the remaining 25 percent on December 15, 2018. If there is a discrepancy when you file your 2018 return in 2019, any remaining balance must be paid then, or the CRA will refund any overage paid.
Failing to respond to this instalment payment notification can lead to penalties and interest applied on arrears, so ensure that you plan accordingly.
A professional like a DFA– Tax Services Specialist™ , can help you reduce your net balance due, reducing or eliminating instalment payments by increasing the tax withheld from various income streams, including Old Age Security and Canada Pension Plan Benefits, Employment Income, RRSP, or employer-sponsored pension benefits. This is why RRSP contributions make so much sense.
Additional educational resources:
Self-employed and looking to enhance your education about relevant tax issues? Try Knowledge Bureau’s Tax Accounting for Proprietorships . A free trial is available. Also be sure you register to attend the Fall CE Summits , focusing on year-end planning for investors and small businesses.
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