Who Has To Pay CRA Income Tax Instalments?

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A letter in the mail from the Canada Revenue Agency (CRA) caught me off guard, wanting $4300 in three weeks as part of the required tax instalments plan.

In September, the CRA wants their first tax installment and a second tax instalment in December for the same amount.

Today, I’m going to give you a rundown of the CRA income tax instalments plan so you aren’t surprised as we were.

Income tax instalments for 2022 and who has to pay for them.
Learn About CRA Income Tax Instalments, And Who Has To Pay

Caught Off Guard By The CRA

Before I start, I want to share the conversation that a CBB fan and I chatted about the other day.

Little did I know that I would be standing in the same boat as her husband the next day.

She contacted me about having to pay the CRA early for a tax instalments plan which I wasn’t aware of.

Perhaps she hoped I knew more about the program, but I didn’t.

Here I was the day before, researching the topic like a detective, not understanding and being thrown in the pit myself.

Opening a letter from the CRA and being told you owe $4300 in three weeks seemed odd, and a friend of Mrs. CBB’s thought it was a scam.

It was nice to hear that friends were trying to warn us of a potential scam.

We assured her friend that it was NOT a scam and that the CRA does call on individuals to pay for the subsequent tax season income tax ahead of time.

Paying Income Tax Instalments For An Idle Business

Below is what a CBB fan and I chatted about on Messenger.

I’ve not included her name for obvious purposes. You will note at the end of each section I’ve marked that the paragraph was from the CBB Fan.

I’ve removed my questions from the conversation so you can read between the lines.

Hi Mr.CBB,

We found that the government CRA selects certain people to pay their taxes early.

My husband got a letter, and they want payment in September and December for taxes filed in 2022.

It’s not even tax season for 2022!! If he doesn’t pay, they will most definitely charge him interest.

It’s extraordinary, but our accountant said it does happen; they choose people randomly to pay early.

So, to clarify, in April, my husband paid his taxes in total, and we have never had payment installments.

The CRA calculated 2020 and 2021, then took the average and asked for payment.

Getting the letter isn’t very comforting, so we know the feeling. Who knew you would get one too!

To top it off, my husband lost his full-time job at the beginning of the month and is waiting for Employment Insurance.

The company he worked for let go over ten people that day, stating that the economic downturn was a significant factor in the decision.

We paid our taxes for 2021 on time, and now it seems they are taking advantage of people without warning.

I have my income that is taxed as I’m off work, and we do not own a farm or other investments.

My husband gets CRA mail online, so he had to check the account, but it never explained it.

-CBB Fan

Calling CRA For More Information

Then he had to call them to understand why they wanted tax instalments.

I find it so weird to ask for money early!

My husband has a corporation and usually works on contract, but he decided to go full-time this year with a new job.

We never close the business but leave it idle, which means they believe we are making income from it.

Yes, he made great money doing contract work last year, but the government takes $4000 per quarter for HST and over $12000 for corporation tax.

Typically, he has corporation money to pay taxes in October as that’s his year-end.

But now, zero is coming in until EI and no income from the idle business.

We always pay it in April, and he lets the business build back up from November onward.

This wouldn’t be an issue if;

  1. He was working full-time
  2. They would have sent a letter out sooner
  3. The business was making money.

I don’t think this would have happened if he had paid his tax instalments.

I believe him paying his entire tax bill all at once last year made them think he’s loaded.

I guess our accountant calculates instalment amounts because most do a payment method.

They have done a silly thing to us, pushing people to a breaking point.

Not everyone can cope with paying a large amount of money for taxes right now.

So, get our money early and make interest off all of us as they do to make more money.

CBB Fan

Treat The Income Tax Instalment Plan As Your Employer

The theory is that if you had an employer, they would take the taxes off automatically, but since we don’t, we have to do it, and they want their money now.

My husband was surprised another person I knew was having this happen.

It’s ironic. Maybe you were meant to tell and warn me so you would have a heart attack.

Now that we know this, we will 100% be putting money aside in an income tax savings account.

My sleep hasn’t been the greatest the past two nights because of this. Even though my husband told the CRA he was working full-time, they didn’t offer any advice.

My dad was a Portuguese immigrant, and his favourite word for the government was crooks.

CBB Fan

CRA Wants Their Tax Instalment Money Now

Something I didn’t consider was to set aside income tax for any earned money from the blog.

Since we have over $100,000 in the bank for renovations and emergency savings, setting aside money for income tax wasn’t an issue.

Ideally, when my income tax return bill comes in the mail, I pay it online.

I knew that I would pay income tax each year, and I was aware that I needed to save money.

After picking up the mail, I noticed I had a letter from the CRA yesterday and wondered what it could be.

I think everyone gets the recognizable CRA brown envelope in the mail cringes.

We knew little about the CRA Required Tax Installments and had to pay for them.

I’ve never read or heard anything about this program since starting the blog.

I guess this is why I have blogged about how I’m still working on navigating the Canadian tax system.

The irony in this situation comes just as one of my readers sends me a message on Facebook.

Income Tax Instalments Payment Plan Canada
Income Tax Instalments Payment Plan Canada

What Are CRA Required Tax Instalments?

CRA-required tax instalments are a payment plan for taxes that have yet to be filed for the upcoming tax season.

The tax instalments are for any of the below individuals who don’t pay enough taxes throughout the year.

For example, if someone was to earn a second income and worked full-time as I do and my tax bill was over $3000 in 2020-2021, then I’m their ideal candidate.

But, if I had a tax bill of less than $3000 in 2020-2021, I would not have to pay tax instalments.

Essentially, you pay income tax as you go along with a regular job.

However, if you think about this process, it’s not so bad as getting a massive income tax bill.

At first, I was bewildered because I had never heard of tax instalments before, but after educating myself, it made sense.

Although, for those of you who are earning income and not setting aside income tax

Who Has To Pay Required Tax Instalments?

Are CRA required tax instalments mandatory? From my understanding, yes.

The tax instalments are due four times each year in March, June, September and December.

Only a few types of people may be required to pay tax instalments.

  • Self-Employed
  • Second Income – That’s me
  • Rental Income
  • Investment Income
  • Certain Pension Payments

Two Factors That Require You To Pay Tax Instalments

According to the CRA website, if both factors apply, you must pay tax instalments.

Also, you may have to pay tax instalments if you are a farmer or fishing, and it’s your primary income source.

However, farmers and fishermen only have one tax instalment payment date, unlike the others.

No payment is needed if a person is deceased and their payment date falls on or after they pass away.

If you’re unsure if this pertains to you, make a phone call to the CRA and ask questions.

Net tax owing in 2021 or 2020

If your net tax owing in either 2021 or 2020 is more than $3,000, or $1,800 for Quebec.

Net tax owing in 2022

If your net tax owing is more than $3,000, or $1,800 for Quebec.

My required tax instalments fall under having a second income, the Canadian Budget Binder.

Calculating Tax Instalments

In the reminder letter, the CRA offers you three ways that you can calculate your tax instalments.

  • Use The CRA estimated calculation in the letter they send you.
  • Calculate using the current year option
  • Use the prior year option

Option One is suitable if your income and deductions stay the same year.

Option Two is best if your deductions will be the same as in 2021 but different from 2020.

Option Three is best if your current year will be vastly different from 2020 and 2021.

To calculate your estimated net tax instalments for Option three, the CRA provides a calculations chart for 2022.

How To Pay For Required Tax Instalments

There are three options for you to pay for your income tax instalments.

  1. Online payment
  2. In-person payment with the voucher attached to the letter
  3. Send payment in the mail with the voucher attached to the letter

Claim Your Amounts On Tax Return

You must claim your total 2021 tax instalment payments on line 47600 of your 2021 tax return. The amounts can be found on either:

Instalment reminder (form INNS1) received in February and/or in August

Instalment payment summary (form INNS2) received in February

CRA Website Tax Instalments

What Happens If I Can’t Pay My Tax Instalments?

Does CRA charge interest on late tax installments?

They sure do, and not only will you have to pay interest for unpaid income tax instalments, but you could face a penalty.

If you receive a letter to pay income tax by instalments and don’t pay, have insufficient funds or are late, they will charge an interest penalty on ALL of them.

You can find out how the CRA will calculate these interest and penalty charges here.

My CBB friend’s husband called the CRA and told him they had no other options.

When your husband called the CRA and explained the situation did they care or offer a payment plan? Hell no! She just warned us about the penalty he would be given if no payment is received.

There was no offer of information of the clear breakdown of exactly how much interest he’d have to pay. He tried to nail down an exact % but they can’t give one because it all depends on how much he owes in April.

CBB Reader Annyomous

Tax Instalment Plans Moving Forward

Now that we have been aware of the CRA Required Tax Instalment Program, we will set money aside.

The CRA does state that if you want to reduce or eliminate having to pay tax instalments, you can do one of the following.

  • Have your employer increase deductions from your pay towards Canada Pension Plan Benefits, Old Age Security, Quebec Pension Plan or EI/Pension Benefits.

Although we don’t know whether we will pay in advance every year, we will have the money saved.

We’ve decided to keep the income tax we set aside for our business separate from everything else.

Ideally, we will put money into our savings account with Tangerine bank and park the money inside.

The final thoughts are more about bringing awareness to those of you who may fall into any of the above categories that could trigger a letter from the CRA.

If you own a business, second income, rentals or other investments, start socking income tax away each month and be prepared to pay.

Discussion: How many of you were aware of the CRA Required Tax Instalment? Were you caught off guard by a letter from the CRA asking for money in three months?

Thanks for taking the time to read my new article and commenting or liking this post.

Mr. CBB

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2 Comments

  1. And this is why one should read through EVERYTHING on the CRA website with respect to income tax, etc., even if you think it does not apply to you at this moment.

    1. Hi Shannon,
      I absolutely agree with you and I’ve probably put it off more times than I can think of. I just paid my first installment right after I posted this.
      Thanks for stopping in to read today’s blog post.
      Mr. CBB

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