Do You Need To Pay Attention To Tax Instalment Reminders
Almost everyone shutters when they see those envelopes arriving in the mail that have come from the CRA. Some are concerned that the CRA is after them for some tax related purpose. Often what these are comprised of is a tax instalment reminder and if this is something new to the individual receiving it, they can be a little bit unsure of just what this means.
The purpose of the instalments is to break down the taxes of that the CRA proposes that you are going to have to pay during the year. Rather than having to make the payment in a lump sum, by breaking it down into instalments they believe that it is easier for the taxpayer to handle. If you have been deemed as a tax payer that has to pay by installments this is not something that is optional. If you do not comply then you can end up being charged instalment interest and penalties.
One thing that you want to be sure of is that you know what all the rules are regarding instalment payments to know whether in fact that you have to comply with these. If the current tax year indicates that you will end up owing more than $3,000 in taxes at the end of the year then you are more than likely going to be set up for instalment payments. The calculation system that is used to determine this can be quite complex. If you are trying to determine yourself or whether the instalments that you have been asked for our accurate there are three different methods that you can use to determine this there is the no calculation method as well as the prior year method, or third option is the current year method.
With the no calculation method that the CRA will look at what your March and June instalments will be based on 25% of the net tax owed from the 2014 assessment. The prior year option will include the calculations based on your 2015 income. If the current year method is being used than you will pay instalments on the amount of tax that you estimate will be owing for 2016.
It is a wise idea to check with your professional who should be your accountant to determine if first you are required to make instalment payments and if so the installments that are being asked for are accurate. There are individuals that prefer the installment method as it really reduces the burden of taxes at the end of the year, while there are others that feel they would prefer to pay all the taxes at the end of the tax. However, the government does have set rules concerning this and they must be complied with.