Dear Valued Client,
As we approach the upcoming tax season, we would like to provide you with important information regarding tax installment payments for both personal and business accounts. Understanding these requirements can help you manage your cash flow effectively and avoid interest charges or penalties.
1. Who Is Required to Pay Tax Installments?
- Individuals: Taxpayers, based on prior year taxes, who expect to owe more than $3,000 in taxes for the current year and for either of the two previous years are generally required to make quarterly installment payments.
- Corporations: Businesses with taxes payable exceeding $3,000 are required to remit quarterly installments to the Canada Revenue Agency (CRA).
For more information, please refer to the CRA’s guidelines on Corporate Tax Payments (Who has to pay in instalments - Corporate income tax payments - Canada.ca)
2. How Much Do You Have to Pay?
· No-calculation option
Use this if your income, deductions and credits are similar year to year. The CRA determines the amount of your instalment payments based on the information from your 2024 assessed tax return (since you would be paying for 2025). CRA may send instalment reminders in February (for March and June payments) and August (for September and December payments) with suggested payment amounts. If you follow their suggestion, you will not be charged interest or penalties, even if your actual taxes are more.
· Prior-year option
Choose this option if your 2025 income, deductions, and credits are expected to be similar to 2024. Under this method, you simply divide the total tax owing from your 2024 return into four equal installments and pay them according to the CRA schedule. This approach is straightforward and helps ensure your payments are on track without requiring detailed calculations.
· Current-year option
Use this option if your 2025 income, deductions, and credits will be significantly different from those in 2024 and 2023. You determine the amount of your instalment payments based on your estimated current year tax owing (2025):
Use this option if your income is lower this year and you want to avoid overpaying.
Risk: If you underestimate, you may owe instalment interest or penalties.
3. Installment Schedule
- Individuals: The CRA typically sets installment due dates on March 15, June 15, September 15, and December 15.
- Corporations: Installments are due monthly or quarterly depending on your total taxes payable in the previous year.
3. Payment Methods
You can make installment payments to the CRA using any of the following convenient methods:
- Online Banking: Most recommended
- CRA’s My Payment Service: Using Interac Debit, Visa Debit, or Mastercard Debit.
- Pre-Authorized Debit (PAD): Automatic withdrawal from your bank account.
- Third-party Service providers like credit card, PayPal, etc.
- In-person at your bank
- Mail: Sending a cheque or money order to the CRA.
Proper planning and timely payments can help you avoid unnecessary interest charges and maintain good standing with the CRA.
If you need assistance calculating installment amounts or setting up a convenient payment method, our team is here to help. Please feel free to reach out to us at [email protected] or 604-674-7727.
Thank you for your attention to this important matter.
Best regards,
Baldip Moore, CPA, CGA
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