Paying your annual tax on a certain date every year can be heavy on your pocket and can bring about a drastic change in your monetary plans. You can reduce that load and make smart payments instead when it comes to paying off your tax. The easy way out is to pay the tax in instalments.
Yes, you heard that right. Taxes can be paid in monthly instalments. They are like the periodic instalments that need to be paid on certain dates instead of going by the idea of paying the entire amount in one go or as you say the lump sum amount. Even if you are not required to by the CRA, it will help you even out the costs. The usual date to pay the entire amount otherwise is the 30th of April every year.
Instalments are not paid in advance; they are paid during the calendar year in which you are earning the taxable income. The instalments may vary from province to province. Your net tax owing and residence also plays an important factor in determining the nature of your instalments.
Although. The instalments make things easy for the taxpayer, there are consequences if you somehow miss paying your instalments on time. The consequences can make you face penalties and pay soaring interest rates if you don’t follow the directions and timeline set by the CRA. The CRA sends reminder letters in the mail about the number of your instalment payments and the due dates.
One of the most important and baffling questions that Canadians face is about calculating the 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:
Calculator, you May Want!
A very flexible way of making your payments easy by way of paying them off periodically is by choosing your mode of payment or your payment method. As mentioned above, the CRA send you an instalment reminder package. Along with that, aForm INNS3 (Instalment Remittance Voucher) is also sent unless you choose to make your instalment payments by pre-authorized debit. You can choose your method of payments from the numerous options listed below:
Telephone banking or online payment is one of the best ways to make instalments. It is also widely preferred by all as all the quarterly payments can be scheduled ahead of time and the possibilities of paying penalties can be avoided.
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.
CRA’s website comes in handy when you have to make your payment. You can either use the internet or directly log into the website to make the payments. To do this, you must have a bank account at a bank or credit union in Canada.
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.
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.
If you are required to pay instalments, the CRA needs to receive your instalments BEFORE December 31 of the current year.
Here are suggested dates to pay your tax instalments:
Although the choice of making either the lump-sum payment or instalment payments is different, your instalment interest rate can be avoided if you clear your payment before December 31st.