Should You Be Paying Your Canada Tax In Instalments?
It is not uncommon for Canadian tax payers to get confused over what it means to have to pay their tax by instalments. Some that are only familiar with parts of the tax law assume that these types of payments are only applicable to back taxes owed, and arrangements have been made to catch up the tax debt by payments.
It is true that payments for owed back taxes may be arranged in some cases with the CRA, but there is also law concerning Canada tax instalment payments for those that will owe over $3,000 at year end in taxes. These payments are made on dates that have been pre-determined for the tax year by the tax department.
The concept is very similar as to when employers withhold tax on employees wages and submit them throughout the year.
This instalment requirement is applicable to a variety of types of income. It could be you are self-employed, or are receiving your pensions. For whatever reason, if your income dictates that you will owe taxes at the end of the year in excess of $3,000 then you should be making instalment tax payments. Individuals who found themselves in a tax situation for the prior two years of having to pay over this amount in taxes are assumed as being in the same circumstance for the current tax year, therefore should be making the instalment payments.
In some cases you may be able to be exempt from this tax rule simply by having taxes withheld at the source. For example, you can apply to the government to have taxes withheld from your government pension payments.
Usually if you are required to make these payments the CRA will send you a reminder. Also, your tax accountant should bring this to your attention when he has compiled your tax return. If it happens to be a situation where you have only had the one year of having to pay over $3,000 then this would not apply to you. Or, even if you have had to make instalment payments in the past but now your financial situation has changed where you will not be owing more than the $3,000 then you can elect not to pay in instalments.
Canada tax instalment payments are not an option they are mandatory if you fit the criteria of the law pertaining to this.
There are many different tax laws and this is why it is so beneficial to have your taxes completed by a professional such as a quality tax accountant.