Wednesday, June 28, 2023
With rising interest rates, including the interest rate charged by the Canada Revenue Agency (CRA), we thought this would be a good time to talk about tax instalments. The government’s interest rate on unpaid instalments is now 9% which can become very costly.
What are tax instalments?
Tax instalments are payments made to the CRA during the year to cover your balance owing on next year’s tax return.
Who has to pay instalments?
If your net tax owing was more than $3,000 in either of the prior two tax years and will be again for the next tax year, the CRA will want you to make instalment payments.
When to pay and how much?
If this is the first year you need to make instalments, payments are due September 15 and December 15. CRA may send you an instalment reminder notice in August, advising you of the amounts owing on each payment date. Each payment will equal 50% of your balance owing for the immediately preceding tax year.
If you had to pay instalments for the previous tax year, you will receive an instalment reminder notice in February advising you of the payments to make on March 15 and June 15, then another instalment reminder in August, advising you of the payments to make on September 15 and December 15. The total of these four payments will equal your balance owing for the immediately preceding tax year.
If you estimate that next year’s balance owing will be different than the previous year, adjust your September 15 and December 15 payments so that your total payments equal next year’s estimated balance owing. If you need assistance calculating your estimated tax instalments, please contact our office. We can help!
If you do decide to pay a different amount, or if you decide not to pay the instalments at all, you do not have to notify CRA.
What happens if you don’t pay?
While instalment payments are not mandatory, not making the payments will result in interest and possible penalty charges. Based on your actual balance owing, CRA will work backwards to calculate what instalments should have been paid and will charge interest on each missed payment, from the date the payment was due until the date your balance owing is paid in full. Any interest charges will be reflected on your Notice of Assessment. The current annual interest rate being charged is 9%. If your instalment interest charges are more than $1,000, an instalment penalty will also be charged.