Canadian Income Tax Installment Requirements

Tax instalments are payments you make throughout the year to cover the taxes you normally pay in one lump sum on April 30th of the following year. You pay these instalments during the year while you are earning the income, similar to how an employer deducts tax directly from each pay period.

Here are 10 key points about making income tax installments for Canadians in 2024:

• Who Must Pay Installments
  • Taxpayers who owe more than $3,000 in taxes ($1,800 for residents of Quebec) for the current year and either of the two previous years are required to pay installments for their upcoming taxes.
• Installment Due Dates
  • The four installment payment dates for 2024 are March 15, June 15, September 15, and December 15. If the due date falls on a weekend or holiday, the payment is due the next business day.
• Payment Calculation Methods
  • No-calculation method: Based on a pre-calculated amount provided by the Canada Revenue Agency (CRA).
  • Prior-year option: Based on the total tax from the previous year.
  • Current-year option: Based on an estimate of the current year's tax.
• CRA Installment Reminders
  • The CRA sends installment reminders to taxpayers who are required to make payments. These reminders suggest payment amounts but are not mandatory if the taxpayer has a more accurate calculation.
• Penalties and Interest
  • Failing to pay the correct amount on time can result in interest charges on the unpaid amount. Additionally, penalties may be applied if the installments are significantly underpaid.
• Methods of Payment
  • Installments can be paid via online banking, pre-authorized debit, credit card, third-party service providers, or by mailing a cheque or money order to the CRA.
• Overpayment and Underpayment Adjustments
  • If you overpay, the CRA will apply the excess amount to your next tax year or issue a refund. If you underpay, you may need to pay the difference, with interest.
• Self-Employed and Business Owners
  • Individuals with variable incomes, such as self-employed persons or business owners, often need to pay tax installments due to less predictable tax liabilities.
• Income Sources Requiring Installments
  • Income not subject to withholding taxes, such as rental income, investment income, and self-employment income, typically necessitate installment payments.
• Installment Payments for Trusts
  • Trusts, including those for estates and testamentary trusts, might also be required to pay tax installments depending on their tax liability.

Understanding and adhering to these points can help Canadian taxpayers avoid unnecessary interest and penalties, ensuring their tax obligations are met in a timely and efficient manner. If you are not clear on whether you need to submit installment payments, contact our office for assistance.