Depending on your situation you may have to pay some type of tax instalment to the CRA throughout the year. These instalments could relate to individual income tax, business income taxes, and even GST/HST sales taxes.
Most Canadians don’t have to make quarterly tax instalment payments towards their income taxes as their employers deduct sufficient tax at source throughout the year to cover their dues. However, those who have sources of income other than regular employment including freelance income, income from investments and so on have insufficient withholding taxes to their credit. In such a case on fulfilment of certain criteria, CRA compliance calls for payment of tax instalments throughout the year.
Who has to pay instalments?
As per CRA guidelines, you have to pay tax instalments for the next year’s taxes, If your net tax owing is more than $3,000 (for Quebec $1,800) for 2022 and either in 2021 or 2020. In other words, your net tax owing for the current year will be more than $3,000 AND your net tax owing was more than $3,000 in either of the two calendar years before the previous year.
What are your instalment payment options?
There are three options to calculate income tax instalment payment:
- No-calculation option:
This calculation is best if your income, deductions, and credits stay about the same from year to year. The amount of instalment is calculated based on the latest assessed tax return and the same is mentioned in the instalment reminder sent by CRA.
- Prior-year option:
This option is best if your current calendar year income (2022), deductions and credits will be similar to your prior calendar year amount (2021) but significantly different from those in the calendar year before that (2020).
- Current-year option:
This option is best for you if your current calendar year income (2022), deductions and credits are significantly different from those in prior years (2021 and 2020).
You determine the number of your instalment payments based on your estimated current year (2022).
When are the instalments due?
The quarterly instalment payments are due on March 15, June 15, September 15, and December 15.
As corporations can have various fiscal year dates, instalments for corporations are related directly to their fiscal year. They are due on the last day of the month or quarter for the fiscal tax year, based on the setup.
Sales tax instalments for GST/HST registrants:
It is important to understand that sales tax is not income tax. Federally, businesses (whether corporations or self-employed individuals) have criteria surrounding having to register for GST/HST due to their sales and supplies. For those that are registrants, if they are set up as annual filers, often they are required to make sales tax payment instalments quarterly.
Not every registrant has to pay quarterly. If you collected and remitted $3,000 or more in GST/HST in the previous fiscal year, you are required to make quarterly instalments to avoid interest fees or penalties.
The quarterly GST/HST payments are due by April 30, July 31, October 31, and January 31.
For further assistance kindly contact us at Rav Bhatia CPA Professional and book a free consultation with us. Our tax experts will guide you as far as your tax instalments are concerned and also help you in your filings with the CRA.