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Paying income tax instalments
April 7, 2019
11:35 am
Kidd
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There was recently a thread in this forum about the unfairness of paying tax on rrsp withdrawls.

I think this “tax grab” should be more of a concern to ALL of us… Tax Installments. The paying of income tax on money that has yet to be made and how the paying of that tax, impedes the income that you could have made? (Hey, it’s a circle or a catch 22)

The CRA look at previous income numbers and the tax due, at tax time. If the tax owed at tax time is substantial ($3,000 or more), they force you to pay tax installments on money that they presume you are going to make the following year.

WOW, if only VISA could do this. VISA would look at your expenditures last year and then bill your future account, even though you never took the card out of your wallet.

Now. If someone had a history of not paying their debts… maybe I could see starting a quarterly payment program, whereas they must submit their income numbers to date and the taxes due on that income.

My Story. I always owe income tax and for a couple of years I owed 5 figures at tax time (not counting the pennies). I just wrote them a cheque for the full amount, no questions asked. Then a few months later, I received a bill from the CRA asking for another 5 figures, the taxes due for next year. So my bottom line took a hit that year and ever since then, I’ve been paying my taxes in advance. Thankfully, YOUR government was gracious enough, I was allowed to pay in two equal installments.

I do understand why your government collects money in advance. A) a large amount of money due at tax time may be uncollectable, so it’s better to ask for smaller incremental payments. B) Your government spends money on a second by second basis and they never seem to tire of spending, so they will always need more and more and more.

April 7, 2019
11:45 am
Top It Up
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Kidd said

I think this “tax grab” should be more of a concern to ALL of us… Tax Installments. The paying of income tax on money that has yet to be made and how the paying of that tax, impedes the income that you could have made?  

Hey, it's been so long that I can't remember when I wasn't paying instalments BUT in fairness to the CRA, they have absolutely no idea how you earned or received investment income i.e. daily, weekly, monthly, etc ALL they know is you're making it and they want "progress" payments.

April 7, 2019
3:46 pm
Norman1
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Two installments a year is not really a tax grab.

People who are employees have income tax withheld from each paycheque. In effect, that is equivalent to making 26 installment payments a year.

One can request additional tax withholdings at source on pension payments so that one doesn't end up owing $3,000 or more in net taxes each April 30. That will avoid the requirement to make installment payments.

For CPP and OAS payments, the Service Canada form is ISP-3520.

April 7, 2019
3:58 pm
Rick
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Norman1 said
Two installments a year is not really a tax grab.

People who are employees have income tax withheld from each paycheque. In effect, that is equivalent to making 26 installment payments a year.

One can request additional tax withholdings at source on pension payments so that one doesn't end up owing $3,000 or more in net taxes each April 30. That will avoid the requirement to make installment payments.

For CPP and OAS payments, the Service Canada form is ISP-3520.  

Don't know about OAS yet, but if you have a Service Canada account, now you can log in and make changes to your CPP witholding tax on line...no paper.

April 7, 2019
4:20 pm
AltaRed
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Top It Up said

Hey, it's been so long that I can't remember when I wasn't paying instalments BUT in fairness to the CRA, they have absolutely no idea how you earned or received investment income i.e. daily, weekly, monthly, etc ALL they know is you're making it and they want "progress" payments.  

Indeed, and that is fair. Just like what Norman said about employees having income tax withheld at source. My investment income comes in on a somewhat regular, albeit lumpy, interval. Seems appropriate to make progress payments on tax owing. I'd rather do that than have Ottawa be even more inefficient borrowing short term money to make it to April 30th every year.

April 7, 2019
5:06 pm
Save2Retire@55
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This is interesting. In my opinion, it is not fair to collect the whole amount before even you receive the money.

Have you contacted CRA to request something like employee's pay cheque withhold? Something like paying CRA 26 times a year (Every 2 weeks?). I am sure something like this can be discussed with them specially as you always paid your taxes. I think the government hates it when people keep the TAX for the whole year and earn money / interest out of it.

There should be a fair solution. I'd really like to get an update if you ended up contacting up to settle for a new agreement.

April 7, 2019
5:48 pm
Doug
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Think of it this way: if you owe too much in tax to the CRA at the end of the year, you're a credit risk to them in terms of your ability to pay, potentially (despite them, admittedly, having super senior creditor status sf-cool). Is $3,000 the right number? I'm not sure, it might be a bit low. Personally, I think $5,000 or more in tax owing should probably force you to pay tax by installments (or request additional withholding tax taken off). I get that you don't want to loan the CRA money interest-free, but then there's the other extreme.

I know quarterly installments are typical - it's really easy to set up a bank PAD online in CRA My Account. Not sure if you can set up a monthly bank PAD online, but I'm sure CRA could set up a custom installment payment schedule on request. They're really quite friendly people! sf-cool

NB I'd rather deal with the CRA than a telecom company any day! 😉

Cheers,
Doug

April 7, 2019
5:51 pm
Oscar
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I have to agree with you Kidd . It has a bit of a Minority Report theme to it right ?
1 They don't know that you are going to owe them anything but they are using the past to predict the future
2 They are essentially saying you arer a deadbeat so we want it up front
3 At least when they deduct from payroll they take a % and they know you have already earned the money but it still isn't due until April 30 of the following year so see point 2
4 Thanks Normal and Rick for pointing out a solution for probably many seniors . That should be provided as a first option , one I have never heard of or thought about . But if they did it that way people seniors would be screaming.
5 As for giving them the money before it's due so they don't have to borrow as much short term , I think it's a terrible idea , they will just spend more and adjust the books and be in more debt sooner and they are then spending money they don't know is due yet anyway
We've just been conditioned to believe this is acceptable and it isn't and I think that was Kidds point and he seems to be right

April 7, 2019
5:54 pm
Oscar
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I just thought of a simple solution. They should just put a lien on your primary residence for $5000 if you own one. Simple. That should make everyone happy

April 7, 2019
6:30 pm
Kidd
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I am paying advance income tax on investment income, based upon the investment returns i made a previous year. So, i am paying tax on money that i may or may not make. I DO pay income tax on my pension and rrif monthly, upon receipt.

(The circle) The cra taxing me in advance impedes my ability to make the income they want to tax.

I am currently paying 4 installments a year, March, June, September and December.

** sf-laugh

April 7, 2019
8:06 pm
Norman1
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Oscar said


3 At least when they deduct from payroll they take a % and they know you have already earned the money but it still isn't due until April 30 of the following year so see point 2

That's not true. It is any difference between the installments paid and actual taxes owing that can be due April 30. The actual taxes are due on the installment dates.

If the difference is less than $3,000, then there's no interest charged or penalty for not having paid the taxes on the installment dates, unless taxpayer has been asked to pay by installments.

April 7, 2019
8:14 pm
Norman1
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Kidd said
I am paying advance income tax on investment income, based upon the investment returns i made a previous year. So, i am paying tax on money that i may or may not make. …

That's up to you. The payment amounts in the installment reminders are a suggestion. One can pay less than the suggested amount if one will be owing less tax.

But, one had better be correct. Late interest and penalties will be charged if one pays less than the suggested amount and the installments end up being not enough for the taxes owing.

April 7, 2019
8:19 pm
Norman1
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Doug said

… Is $3,000 the right number? I'm not sure, it might be a bit low. Personally, I think $5,000 or more in tax owing should probably force you to pay tax by installments (or request additional withholding tax taken off) …

$3,000 is the correct number. It's not $3,000 of income taxes payable. It's $3,000 shortfall between taxes withheld during the year and the final tax bill.

If one pays $125,000 of income tax and $124,000 was already withheld during the year from the various sources of income, then the shortfall is just $1,000 and one does not need to pay taxes by installment.

April 8, 2019
2:52 am
Kidd
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Norman, i understood and appreciate your reply (as always).

For taxation year 2018, i have received a tax return of approximately $750. So the total tax collected by installments was close to the total tax due.

Looking ahead at 2019, i will receive the bulk of my investment return in December 2019, when the payment on an asset comes due. Up until that point in time, the cra tax installments come out of my living expense (that circle thing). Fortunately, i have the assets to pay the advance taxes in March, June and September.

I wonder if GM charged their customers in advance, say 9 months before the expected delivery date... hmm, would that be an acceptable business practice? I had to get an auto reference in here somewhere just to support the cause and all.

** place witty quip here.

April 8, 2019
4:58 am
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BIG thanks to @Norman1 - Post #3 and @Rick - Post #4 for that info ... I'm now going to adjust my monthly CPP payments to include a withholding tax - thereby eliminating the need for quarterly instalments.

April 8, 2019
5:04 am
Loonie
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This is just a question, not a suggestion I don't want to get anyone in trouble.
If the goal is to simply ensure that you have paid the amount requested for the year in question during the year in question, then what would happen if you just paid it all in the final instalment? You would have paid it all by year end but not on their schedule.
I have the impression from what Norman has written that this would be OK, but that doesn't seem to make sense either.

April 8, 2019
8:02 am
Kidd
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Loonie said
This is just a question, not a suggestion I don't want to get anyone in trouble. 

Trouble, i love trouble, that's why i married her.

It is my understanding... when the cra ask for money by a certain date, that money is due on that date, otherwise they charge loan shark interest rates. There is no... i'll catch you next month, i'm a little short right now. I tried to offer them my first born as collateral, they weren't interested... can't say i blame them.

April 8, 2019
10:51 am
AltaRed
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Loonie said
This is just a question, not a suggestion I don't want to get anyone in trouble.
If the goal is to simply ensure that you have paid the amount requested for the year in question during the year in question, then what would happen if you just paid it all in the final instalment? You would have paid it all by year end but not on their schedule.
I have the impression from what Norman has written that this would be OK, but that doesn't seem to make sense either.  

My ex was late with either a June or September installment payment a few years back. CRA charged her interest.

April 8, 2019
10:54 am
AltaRed
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Top It Up said
BIG thanks to @Norman1 - Post #3 and @Rick - Post #4 for that info ... I'm now going to adjust my monthly CPP payments to include a withholding tax - thereby eliminating the need for quarterly instalments.  

There are also other ways such as taking your annual RRIF withdrawal in early/mid December and having sufficient income tax withheld....so that one stays below the $3k threshold owing come April 30th. CRA considers RRIF tax withholding the same as source withholding, as with pay cheques. That way, one escapes installment payments.

April 8, 2019
11:15 am
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Thanks AltaRed for the reminder. Few years away from working the RRIFs, personally, but I had some experience with them when I was POA for a coupela older folks a few years back.

I had no idea about the OAS/CPP withholding tax because, truthfully, I've spent zero time snooping around the Service Canada website. Setting up 4 online payments through online banking takes little effort BUT since I'm pretty clear on what my income is going to be year over year, it would just be more efficient to set up the withholding tax and be done with it.

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