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Paying income tax instalments
April 13, 2019
7:39 pm
Norman1
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Bill said

Here's CRA's 2019 calculation chart re instalments, and I think it indicates what they mean by credits:
https://www.canada.ca/content/dam/cra-arc/migration/cra-arc/tx/ndvdls/tpcs/ncm-tx/pymnts/nstlmnts/Instalment_chart_fill-19e.pdf

Looks like we arrived at the same interpretation of "net tax owing" as CRA did. sf-laugh

April 13, 2019
9:03 pm
Loonie
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Norman1 said

Loonie said

Sounds to me like it is at the discretion of the taxpayer, depending on their "estimate". I know a lot of people who could never estimate this with anything approaching accuracy, some because they lack the skills and some because it is impossible to do so.

Do you really think CRA is going to nit-pick about our ability to make reasonable estimates? …

That is correct: One can use one's own "estimate" instead. But, it is at one's peril...

If that "estimate" ends up being both (a) less than the payment suggested in the instalment reminders and (b) the final taxes owing, then interest will be assessed on the difference from the instalment payment dates.

I don't get your conclusion in relation to the question I have been asking.
If the person has never received instalment reminders (having never exceeded the 3K criterion), then I don't see that these paired criteria can be met.

April 14, 2019
7:41 am
Norman1
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Loonie said

I don't get your conclusion in relation to the question I have been asking.
If the person has never received instalment reminders (having never exceeded the 3K criterion), then I don't see that these paired criteria can be met.

Nothing to worry about the first year. One won't be required to pay taxes by instalments the first taxation year "net tax owing" exceeds $3,000 ($1,800 for Quebéc residents). sf-smile

"Net tax owing" needs to exceed the threshold, both in the year and in at least one of the two preceding years, for instalments to be required for the year.

April 14, 2019
1:46 pm
Loonie
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I seem to be having a great deal of difficulty getting the question across.

April 14, 2019
3:00 pm
Top It Up
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Loonie said
I seem to be having a great deal of difficulty getting the question across.  

I think your problems rests with you NOT wanting to accept the answer - the answer is more than clear in the link @Bill provided in Post #60 -

Important

If you received an instalment reminder and you are required to pay instalments but do not make the proper payments, you may have interest and penalty charges.

April 14, 2019
3:26 pm
Kidd
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Loonie, a way to avoid the cra tax installments.

Either reduce or defer your income, so that your end of year tax owing, is less than $3,000.

As Oscar has stated in post #44. If you, on your own initiative pay more tax by increasing the withholding tax on your income sources. It becomes six of one, half a dozen of the other. The only issue i have with the installment plan is.... i am paying income tax before i actually realize the income.

Well, that's not really the truth, "The only issue i have with the installment plan is" in canada we pay far too much tax. We have too much government. I'm ALL for paying no tax whatsoever.

Added edit.

If i changed my user name to say "Ddik" and typed the above... would you know it's me?

April 14, 2019
4:40 pm
Norman1
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Loonie said
I seem to be having a great deal of difficulty getting the question across.

I was away a few days and am not certain what the exact question was.

If it was how to avoid the obligation to pay tax instalments, then the answer is to adjust tax withholdings at source, if possible, so that "net tax owing" each year is less than the threshold of $3,000 ($1,800 for Québec taxpayers).

That's not always possible. For example, with rental income, there's no mechanism to have a tenant do a tax withholding and sent it to CRA.

It had looked like one could make voluntary payments to one's tax account to reduce "net tax owing". While they would reduce "Balance owing" on line 485, such voluntary payments don't reduce "net tax owing" as defined in subsection 156.1 (1).

April 14, 2019
5:03 pm
Loonie
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Top It Up said

I think your problems rests with you NOT wanting to accept the answer - the answer is more than clear in the link @Bill provided in Post #60 -

Important

If you received an instalment reminder and you are required to pay instalments but do not make the proper payments, you may have interest and penalty charges.  

No. Nothing to do with instalment reminders or demands to pay them.

April 14, 2019
5:38 pm
Loonie
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Norman1 said

Loonie said
I seem to be having a great deal of difficulty getting the question across.

I was away a few days and am not certain what the exact question was.

If it was how to avoid the obligation to pay tax instalments, then the answer is to adjust tax withholdings at source, if possible, so that "net tax owing" each year is less than the threshold of $3,000 ($1,800 for Québec taxpayers).

That's not always possible. For example, with rental income, there's no mechanism to have a tenant do a tax withholding and sent it to CRA.

It had looked like one could make voluntary payments to one's tax account to reduce "net tax owing". While they would reduce "Balance owing" on line 485, such voluntary payments don't reduce "net tax owing" as defined in subsection 156.1 (1).  

It had mostly to do with your final scenario.
I have been reviewing the CRA site, and I think I have the answers I need now.

Instalment payments won't b required of us for at least another five years, maybe longer, depending on how we arrange RIF withdrawals.

AltaRed's point, #19 above, that withholding tax on RIF/RSP withdrawals count in your favour is correct, and you can do this all in December. This is how you can avoid the instalment plan.
I suggest considering taking higher withdrawals IF it won't put you in a higher tax bracket AND you will never be in a lower one. If you can't or don't want to do that, then increasing pre-authorized deductions is the next best no-fuss alternative. And if you can't or don't want to do that, then you may have to go with installments.
The problem with the increased RIF withdrawals is that the amount withheld is arbitrary and fixed, and has nothing to do with your personal situation.

When and if we finally get rid of the RIFs, then I'll worry about increasing pre-authorized deductions and instalments.

Thanks for trying to sort me out.sf-smile

April 14, 2019
6:29 pm
AltaRed
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Loonie said
I suggest considering taking higher withdrawals IF it won't put you in a higher tax bracket AND you will never be in a lower one. If you can't or don't want to do that, then increasing pre-authorized deductions is the next best no-fuss alternative. And if you can't or don't want to do that, then you may have to go with installments.
The problem with the increased RIF withdrawals is that the amount withheld is arbitrary and fixed, and has nothing to do with your personal situation.

When and if we finally get rid of the RIFs, then I'll worry about increasing pre-authorized deductions and instalments.

Thanks for trying to sort me out.sf-smile  

If the intent is to avoid installment payments, then arbitrarily increasing RRIF withholding tax is a way to do it. One can elect to have any amount of tax (above minimum statutory requirements) withheld at source.

In my case, in 2021, I will have one RRIF withdrawal per year (can be minimum or more), on or about Dec 1st of each year, and have 90% of it withheld in tax. Even that won't be enough for me to avoid installment payments but it will definitely decrease them and be to my benefit to do so.

April 14, 2019
7:50 pm
savemoresaveoften
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I dont see any value in avoid installment payments thru arbitrarily increasing withholding tax. Whats being achieved by pay the tax at withdrawl, compare to pay it thru installments ? Unless one has no discipline and spend it all and end up having a cash crunch to pay the installments...

Easiest and cleanest is to just pay the installment amount as calculated by the CRA. This time it guarantees no interest or penalty.

April 14, 2019
8:08 pm
Kidd
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Save more...

Oscar post #44, myself post #66 and yours post #71 have said the same thing. Unfortunately, there seems to be the ability to look but the inability to see. Save more... we have tried our best. You know what they say, you can lead the horse to water but....

April 14, 2019
9:29 pm
Loonie
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There's no need to get all upset at my way of doing things. As I said, #69 above, if you don't want to do what I'm doing or it doesn't apply to you, then you can go with instalments. No problem. However, instalments do not apply to me at this time, and it would be stupid of me to try to pay them. All I was trying to do was to ensure that I was correct in not trying to pay them, - and I am.

Making larger RIF withdrawals is by no means "arbitrary", and its purpose is not to avoid instalments. I calculate a very specific dollar amount each year in order to minimize my tax burden over time. Perhaps that is not a concern for you, or even possible, but it works for me, and I'd rather pay a lower rate now than a much higher rate later.
If you would like to understand this strategy better, suggest reading Daryl Diamond's book on retirement income planning. Or, if you wish, you can just leave it all in the RIF until your estate has to pay tax on the whole thing at once at your then-marginal rate. Your choice, and it doesn't matter to me what you do.

None of you seem to have understood the strategy or the goal except AltaRed, as you are all focused on making instalments and ensuring that everybody makes them and on extolling their virtues. But that's up to you.

I could easily pay it all on January 1 if I chose to, but instalments don't apply to me as long as I am cashing in significant RIF amounts the following December.

When and if the RIFs are emptied, I will return to the question of instalments. However, I will likely NEVER make instalments because I would rather pay it through additional deductions at source, which I will then arrange.

The older you get, the less likely you are to remember things. My goal is to avoid having to remember to deal with instalments, especially with such high penalties. I want my finances to operate on autopilot as much as possible in the future. Until then, I will keep a close eye on income projections to verify that planned RIF withdrawals are adequate. This has worked very well for us for the last five years or so that I have been doing it.

And that is all I have to say about this. Take it or leave it.

April 15, 2019
4:24 am
Top It Up
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73 Comments later and the result remains the same - everyone STILL has to pay income tax - go figure.

April 15, 2019
9:11 am
AltaRed
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Top It Up said
73 Comments later and the result remains the same - everyone STILL has to pay income tax - go figure.  

Agreed. It really does not matter how one does it. It is a matter of personal portfolio circumstances and/or preferences.

April 15, 2019
12:05 pm
savemoresaveoften
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Loonie said
There's no need to get all upset at my way of doing things. As I said, #69 above, if you don't want to do what I'm doing or it doesn't apply to you, then you can go with instalments. No problem. However, instalments do not apply to me at this time, and it would be stupid of me to try to pay them. All I was trying to do was to ensure that I was correct in not trying to pay them, - and I am.

Making larger RIF withdrawals is by no means "arbitrary", and its purpose is not to avoid instalments. I calculate a very specific dollar amount each year in order to minimize my tax burden over time. Perhaps that is not a concern for you, or even possible, but it works for me, and I'd rather pay a lower rate now than a much higher rate later.
If you would like to understand this strategy better, suggest reading Daryl Diamond's book on retirement income planning. Or, if you wish, you can just leave it all in the RIF until your estate has to pay tax on the whole thing at once at your then-marginal rate. Your choice, and it doesn't matter to me what you do.

None of you seem to have understood the strategy or the goal except AltaRed, as you are all focused on making instalments and ensuring that everybody makes them and on extolling their virtues. But that's up to you.

I could easily pay it all on January 1 if I chose to, but instalments don't apply to me as long as I am cashing in significant RIF amounts the following December.

When and if the RIFs are emptied, I will return to the question of instalments. However, I will likely NEVER make instalments because I would rather pay it through additional deductions at source, which I will then arrange.

The older you get, the less likely you are to remember things. My goal is to avoid having to remember to deal with instalments, especially with such high penalties. I want my finances to operate on autopilot as much as possible in the future. Until then, I will keep a close eye on income projections to verify that planned RIF withdrawals are adequate. This has worked very well for us for the last five years or so that I have been doing it.

And that is all I have to say about this. Take it or leave it.  

certainly planning withdrawal with the purpose of minimizing lifetime total tax paid makes sense and I fully support someone to spend the time and effort to do it. It is just that it really has nothing to do with increased withholding tax at source vs pay by installments. Oscar, Kidd and myself are simply saying it does not achieve any financial benefit via increase withholding tax.

Re pay by installments, you can simply put in post dated entries on your bank account, which is what I do.

The beauty I see in pay the installment amount is it guarantees you there wont be any interest nor penalties, which is something you mentioned as a potential financial hit too.

We are all good and trying to save as much of our hard earned money at the end of the day.

April 22, 2019
5:58 am
savemoresaveoften
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Got a bit of a special situation (sort of):

Since my 2018 installments were high and as a result I am expecting a hefty refund for 2018 (filed my tax return last week).
Back in Feb, 2019 installments email were sent out asking for payment in Mar and Jun under the no calculation option. I made the Mar payment so far.
My question is since I am having a refund for 2018, and one of the 2019 installment option is 1/4 of the 2018 net tax owing, does it mean I can ignore the 2019 installements reminder ?
I will have to pay net tax on 2019 tho (From investment return, etc) This is a 100% certainty.

April 22, 2019
6:43 am
Bill
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My guess is if your 2019 tax owing will exceed $3K (outside Quebec) then you have to make your instalment payments this year. But I'm not sure.

April 22, 2019
7:11 am
Norman1
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Instalment payments are based on "net tax owing", a special term defined in Income Tax Act subsection 156.1 (1). "Net tax owing" is not the same as "balance owing" on line 485. "Net tax owing" does not include instalment payments made as "balance owing" does.

A refund just means "balance owing" is zero. It doesn't mean "net tax owing" was zero as well.

If "net tax owing" was also zero, then the refund next year would be at least 100% of the instalment payments made.

April 22, 2019
8:46 am
Bill
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Norman1, the question was whether or not savemoresaveoften can ignore the 2019 reminders. My guess was that if they don't make instalments and end up owing more than $3K at tax return time in 2020 then they shouldn't have ignored the reminders. Are you saying something different?

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