If you are a taxpayer where you don’t have enough taxes being withheld from your income during the year (perhaps you have rental income, foreign pensions, or investment income) you may need to pay income tax instalments throughout the year. Instalments are determined based on your province or territory or residence and your net tax owing, in the current tax year.
Instead of paying your taxes at once before the tax payment deadline, usually April 30, you pay your taxes throughout the year, even if you are not required to by the CRA, it will help you spread out the costs.
If you fail to make your instalment payments on time as dictated by the CRA, you might face penalties and interest form the CRA. The CRA sends reminder letters in the mail about the amount of your instalment payments and the due dates.
Calculating Your Instalment Payments
You have to pay your taxes by instalment if your balance owing exceeds $3,000 in the current tax year and either of the previous two years (in Quebec, use $1,800 instead of $3,000). If you are required to pay your taxes by instalment, you have three payment choices:
- No-calculation Option: This option is ideal if your income, tax deductions and tax credits do not vary significantly between years.
- Prior-Year Option: This option is ideal if your current year income, tax deductions and tax credits are comparable to your prior year amounts but are significantly different from the amounts two years ago.
- Current-Year Option: This option is ideal if your current year income, tax deductions and tax credits vary a lot from the previous two years.
How Do You Make Instalment Payments?
If you are required to pay tax by instalment, you can choose your payment method. When the CRA sends you an instalment reminder package, you also receive Form INNS3 (Instalment Remittance Voucher) unless you choose to make your instalment payments by pre-authorized debit. Choose from the following payment methods:
- Electronically: Make your instalment payment electronically through online or telephone banking. Consider scheduling your quarterly payments ahead of time to avoid penalties and interest by forgetting to make payment.
- Your Bank Branch: Make your instalment payment at any bank or credit union in Canada. Be sure to bring a copy of Form INNS3, or else your payment cannot be accepted. Make sure the teller stamps Form INNS3 for your records as proof of payment.
- My Payment: Make your instalment payment via the Internet on the CRA’s website. To do this, you must have a bank account at a bank or credit union in Canada.
- Pre-authorized Debit: Make your instalment payment by pre-authorized debit from your bank account. The pre-authorized debit can be set up through the CRA’s My Account website. Pre-authorized debit payments continue until you cancel them, even if you do not owe any instalment payments.
- Mail: Make your instalment payment by sending a post-dated cheque or money order payable to the Receiver General of Canada. Be sure to include a completed copy of Form INNS3 and mail both to Canada Revenue Agency, 875 Heron Road, Ottawa ON K1A 1B1. To ensure the payment is applied to your tax account, the CRA recommends writing your Social Insurance number on the reverse side of your cheque or money order.