Paying income tax instalments | Page 2 | Income tax filing | Discussion forum

I just pay the 'no calculation method 'when cra sends me my installments notice.

AltaRed said

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

Did your ex still owe more money at filing? That would trigger the interest for sure, but are you saying they were charged immediately after missing a payment?

Let's say you were subject to the quarterly payment system, and believed your income would be significantly lower this year as compared to last year. So, you decided that you could ignore the quarterly payment requirement because you were getting sufficient deductions from CPP, OAS and perhaps a pension plan or RIF. Then, later in the year, you got an unexpected short term contract, and your income suddenly went up. At that point you decided to make an online contribution to CRA which would cover the shortfall.
Are you saying that you would be penalized?

If, on the other hand, you had managed your tax payments in the manner Bill suggests, with some automatic deductions and some voluntary payments, and had thus never owed more than 3K at the end of the year and were not subject to the quarterly plan, there would be no problem with the above example, even though your payment schedule might be identical, and you would not be subject to fines.

Is that right?.

I've been on installments for serval years, and my wife will too, starting next September.
Just a minor factoid:
It's not actually true that you go on installments if you owe >$3k. It happens if you go over in two of the last three years. Or two years running if you like. One could be over from time to time and not ever go on installments.

Loonie, re post 26, I don't remember the specific circumstances but the specific penalty was on the NOA she received after filing taxes. CRA told her she owed some extra money and why. I never saw the NOA. Just what she told me.

My understanding is you end up paying interest and late penalty ONLY if you end up owing more than 3k AFTER all installments that you pay or ignore.

So if you have been assigned 4 equal installments of $1k each, you can pay it all at the end of the year as a $4k lump sum instead of 4x $1k installment, and you wont be charged interest or penalty as long as net owed after all installments are less than $3k ?

Similarly, if you are assigned 4 equal installments of $5k each, and you ended up paying $10k total installment only, you wont be charged interest and penalty either as long as you real tax is less than $13k ?

Maybe the CRA / tax accountant out there can verify ? This is a question that I wont trust the person that picks up the phone at CRA "hotline" number

Kidd said
Save more...

I am not sure that's how it works?

If i am told by the cra to pay tax installments in 2019, of $1,000 per quarter as in your example, which is paid on time as instructed. Then come my income tax filing in April 2020, i owe an additional $8,000 in tax. I do not believe i'm charged interest on that $8,000. I think my installments would be increased from $1,000 a quarter to $3,000 a quarter for 2020

Then come the following April 2021, based on my tax return for 2020, my installments may be adjusted again, either higher or lower.

But what i have learnt over the years... there are always two ways to do things, my way or the right way.

Added edit.

As per my original post, post 1.

I owed a good 5 figures for a couple of years, before i was put on the installment plan. I paid no interest on what i owed because i paid it all upon the April filing. BUT in the year they put me on installments. I first paid 5 figures upon the April filing, THEN i was billed another 5 figures in that same year and i was allowed to pay that bill in two (2) payments. So in that year, i paid taxes basically twice. Taxes owed for the last year and taxes for the current year.  

u r right, CRA wont charge interest as long as you pay what they set as your current year installment. I will change my example in my previous post to reflect.

Bill said
I think toto summed it all up succinctly in post #22 - just do what they say and you'll spend no time on this plus have no problems with CRA.  

Indeed, and pay the installments on time to avoid the late filing charge my ex had a few years ago. It was minor but a nuisance to have to deal with. There is no substitute for just doing exactly what the installment request says.

The conditions to avoid instalments are noted above, i.e. if you don't want to make instalments in 2019 don't have both the following:

1. Don't owe > $3K when filing your 2018 return, and
2. Don't have owed > $3K when you filed either 2016 or 2017 returns.

Loonie said
True, but this doesn't cover the question of planning to avoid being billed for quarterly payments in the first place. How best to do that is my question.  

FWIW I use a simple homegrown spreadsheet to estimate my taxes for the year, updating it monthly with known data to improve the accuracy of the estimate as the year unfolds. I voluntarily make quarterly installments, typically earlier than required, making adjustments up or down to the remittance amount as necessary, and I always make sure that my Q4 payment puts me into a small credit position for the full year which gets recovered when I file. Have never been issued a CRA order to pay installments, most likely because I've never been behind.