Paying tax on earned income is a fact of life. Most people have their tax taken directly from their paycheque by their employer (tax deducted at source). If you are self-employed, receive investment income or rental income, you will probably need to pay personal income tax instalments. When the total amount of tax that you owe, less any deductions made at source, exceeds $ 3,000.00 for the current taxation year and either of the two preceding years, it is likely that you will have to send regular tax payments to the Canada Revenue Agency (CRA).
The CRA examines prior year’s tax returns and sends out instalment reminders to people who are required to submit instalment payments. In 2013, instalment payments are due on March 15, June 15, September 15 and December 15. According to CRA, instalment interest will apply if ALL of the following conditions apply:
- · You receive an instalment reminder;
- · Are required to pay instalments;
- · You fail to make a payment or payments were late or less than the required amount.
However, reminders are based on last year’s income information. If you are certain that your tax liability for the current taxation year will be less than $ 3,000, you do not need to submit an instalment payment. As well, if you become self employed in a taxation year, CRA will not charge interest because of a failure to pay tax instalments. In order to avoid a tax surprise in April, though, we recommend that those who are newly self-employed or recipients of income that has not had tax deducted, either start to submit quarterly tax instalments to CRA or deposit money throughout the year in a savings account, in order to have enough cash in hand when the tax department calls.
For complete information on instalments, see: http://www.cra-arc.gc.ca/E/pub/tg/p110/p110-12e.pdf