Q – Last week you answered a question about fighting a Notice of Assessment from the Canada Revenue Agency. My question relates to another comment made on my Notice regarding instalment payments. I have a business on the side, apart from my regular employment, and every year I’ve paid tax on income from that business. Now the CRA says that I “will receive an instalment reminder in August” and that I may have to start making instalment payments on September 15. I’m not sure what this means. Can you explain? – Shirley B., Toronto, Ontario
A – Around this time of year, we get plenty of questions about both Notices of Assessment demanding more tax and instalment payments. Both issues can get complicated, as you might expect in dealing with the CRA, so it pays to take a few minutes to try to sort out what’s going on.
In your case, the CRA has determined that the annual tax you owe, less any withholding, for the current year and either of the two previous years is more than $3,000. Very simply, if you owe more than $3,000, they want you to pay in instalments, typically payable quarterly.
Unlike quarterly instalment payments for GST/HST, which are mandatory whether or not you receive a notice or voucher, you don’t have to cough up instalments on income tax payable until you receive a “reminder notice” from the CRA. You’ll get a reminder notice twice a year – one in February reminding you to pay up on March 15 and June 15, and one in August, reminding you that instalments are due on September 15 and December 15.
It sounds like you’ve recently exceeded the $3,000 threshold, and that the CRA therefore wants you to pay your 2013 tax bill in two instalments starting on September 15. The CRA has to receive these payments by the due dates so that you will be deemed to have paid on time – no “postmarks” allowed. You’ll then receive reminder notices for regular quarterly payments beginning in March 2014.
If you are sure your tax liability for 2013 will not exceed the $3,000 threshold, you can ignore the instalment reminder notices. If you’re not sure or you think you’re borderline, it makes sense to go ahead and pay the instalments to avoid various penalties and interest charges, which can be hefty, as instalment interest is compounded daily. The banks and credit card companies have nothing on the CRA for usury!
A CRA demand for instalment payments can also put a monkey wrench in your cash flow planning if you’re not prepared for it. Instalment payments can be tricky, and can get complicated. To avoid running afoul of CRA regulations and incurring penalties and interest, it makes sense to consult a qualified financial advisor if you’re unsure about your tax situation. But make sure you do so well before any due dates set by the CRA. – Robyn