Tax Installments

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freedom_2008
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Re: Tax Installments

Post by freedom_2008 » 01 May 2016 23:11

AltaRed wrote:I am quite aware of the methodologies for paying installment payments. I've used all 3 in the past. The point I am getting at is avoiding installment payments altogether and yet not incur penalties or interest.
As you know that the installment request starts only if one owed more than $3K (= big amount) tax by next April (= late payment) two years in a row (=repeated behavior). If one always pays his/her taxes due by end of each year, he/she would never receive an installment request from CRA. For anyone who knows roughly how much tax he/she needs to pay (say +-2K), he/she can choose to pay at the year end rather than wait until next April, avoid installment payments altogether and yet not incur penalties or interest, plain and simple and legal, no tricks at all.

When I received my first installment request, I read it carefully and understood that I had choices (the note said that I can even ignore the request depending upon the current year's income), so I simply chose to pay tax once at the end of that year instead by the multiple dates on the request. And I always payed my tax by end of the year since. CRA didn't send me any more installment requests, never charged me any interest, no complaints either. That was also the case with my partner but happened in different year. It is simpler for us to pay tax this way (partially by RRSP withdrawing tax holding at end of each year). But it may be simpler for others paying their taxes in different ways.

The bottom line is that we all pay our tax dues, and we can do whatever is allowed and is simpler for ourselves.
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Re: Tax Installments

Post by adrian2 » 01 May 2016 23:40

freedom_2008 wrote:As you know that the installment request starts only if one owed more than $3K (= big amount) tax by next April (= late payment) two years in a row (=repeated behavior).
It's actually 2 out of the last 3 years, not necessarily two in a row.
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Re: Tax Installments

Post by freedom_2008 » 01 May 2016 23:46

adrian2 wrote:
freedom_2008 wrote:As you know that the installment request starts only if one owed more than $3K (= big amount) tax by next April (= late payment) two years in a row (=repeated behavior).
It's actually 2 out of the last 3 years, not necessarily two in a row.
You are correct. But still the same (=repeated behavior).
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Re: Tax Installments

Post by AltaRed » 02 May 2016 00:13

freedom_2008 wrote:The bottom line is that we all pay our tax dues, and we can do whatever is allowed and is simpler for ourselves.
Okay....finally got it. As you suggest, different strokes for different folks.
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Re: Tax Installments

Post by OptsyEagle » 02 May 2016 08:30

freedom_2008 wrote: It is simpler for us to pay tax this way (partially by RRSP withdrawing tax holding at end of each year). But it may be simpler for others paying their taxes in different ways.
I am not sure what you mean here. Are you saying that a lot of your tax owed is paid by withholding's on RRSP withdrawals? That is a lot different then paying an installment or a cheque at the end of the year.

I have not read the installment payment options in a very long time, so perhaps they have changed, but my understanding is the option to ignore it was based on your estimate that you will not owe them the installment amount at the end of the year. If you did, and still owed them a lot of money they would may render interest and possibly penalties. I cannot say that they always will, but that was my understanding.

With the above said, just paying your tax owed at the end of the year kind of undermines the reason for the installment program. The installment program, as I always understood it, was to take away this advantage that self employed individuals had over employees, where employees were required to have tax withheld on each paycheque. The self employed had use of that tax money for the full year. I don't think the installment program was implemented to give self employed individuals a few options that may be simpler for them or work better for them. That type of thing is considered unfair taxation. Also, I can make a payment of any amount, at any time, to my tax account at CRA. I do not need an installment program, with calculated estimates, to do this.

So I believe your post about this being "your choice" is incorrect. I know they tell you that you have a choice of payment, and can ignore the estimates but if you choose not to pay the calculated installment there can be interest and/or penalties rendered, if you end up owing greater then $3,000 on your final tax returns. I can't say they will charge these, but they can. Unless it has changed dramatically in the last 10 years or so.

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Re: Tax Installments

Post by AltaRed » 02 May 2016 09:44

What I get is if there is enough 'withholding at source' however 'source' is defined to avoid more than a $3k tax bill in April, there will not be any triggering of installment payments. Whether that is of value or not I don't know but when I begin to have RRIF withdrawals in 5 years, I suppose I could elect to have my payment circa Dec 1st and have all/most of it withheld as tax (as an example). It is an interesting twist.
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Re: Tax Installments

Post by like_to_retire » 02 May 2016 09:54

AltaRed wrote:suppose I could elect to have my payment circa Dec 1st and have all/most of it withheld as tax (as an example).
Will the deposit broker take that sort of instruction?

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Re: Tax Installments

Post by AltaRed » 02 May 2016 10:13

like_to_retire wrote:Will the deposit broker take that sort of instruction?
I don't know specifically what you mean by deposit broker, but on CPP and OAS payments, one can elect to have as much withholding tax as one wants, and similarly one can increase their source withholding on DB pension plan payments. Why would that not also apply on RRIF payments?

My spouse uses disproportional withholding on her CPP so that she does not owe more than a few hundred dollars in April of each year. She hates owing tax :roll:
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Re: Tax Installments

Post by SQRT » 02 May 2016 10:17

Interesting discussion. I can see where paying all estimated tax by year end can have some advantages, ie you wouldn't get the large "swings" in instalments required caused by lumpy income. In my case though, the amounts are too big to risk making an estimate error. My tax owing this year was well into 6 figures and will thus cause big instalment requests for next year. I can live with this as it will give me the flexibility of income management without worrying about any potential tax interest. Interest rates are so low "over installing" doesn't bother me.

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Re: Tax Installments

Post by like_to_retire » 02 May 2016 10:40

AltaRed wrote:I don't know specifically what you mean by deposit broker, but on CPP and OAS payments,
Sorry I meant discount broker. Yes, I also have most of my CPP taxed at source to reduce my installment payments somewhat, but I have always wondered when my RRIF starts if I'll be able to instruct my discount broker (TDDI) to take a specific percentage or amount of tax just like I do with CPP?

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Re: Tax Installments

Post by AltaRed » 02 May 2016 10:48

I would imagine so. Ask your discount brokerage out of couriousity.
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Re: Tax Installments

Post by freedom_2008 » 02 May 2016 11:12

OptsyEagle wrote:
freedom_2008 wrote: It is simpler for us to pay tax this way (partially by RRSP withdrawing tax holding at end of each year). But it may be simpler for others paying their taxes in different ways.
I am not sure what you mean here. Are you saying that a lot of your tax owed is paid by withholding's on RRSP withdrawals? That is a lot different then paying an installment or a cheque at the end of the year.
I payed CRA via my bank at the the end of that year which CRA sent me an installment request. RRSP withdrawing happened (at end of each year) only after we stopped working, and as we have been paying extra taxes by year end for a few years before then, CRA has stopped sending installment requests after the first time.
OptsyEagle wrote:I have not read the installment payment options in a very long time, so perhaps they have changed, but my understanding is the option to ignore it was based on your estimate that you will not owe them the installment amount at the end of the year. If you did, and still owed them a lot of money they would may render interest and possibly penalties. I cannot say that they always will, but that was my understanding.
I knew what my investment income would be that year, so I payed accordingly and made sure there wouldn't be any shortage over $2k next April.
OptsyEagle wrote:With the above said, just paying your tax owed at the end of the year kind of undermines the reason for the installment program. The installment program, as I always understood it, was to take away this advantage that self employed individuals had over employees, where employees were required to have tax withheld on each paycheque. The self employed had use of that tax money for the full year. I don't think the installment program was implemented to give self employed individuals a few options that may be simpler for them or work better for them. That type of thing is considered unfair taxation. Also, I can make a payment of any amount, at any time, to my tax account at CRA. I do not need an installment program, with calculated estimates, to do this.
I have never been self employed.
OptsyEagle wrote:So I believe your post about this being "your choice" is incorrect. I know they tell you that you have a choice of payment, and can ignore the estimates but if you choose not to pay the calculated installment there can be interest and/or penalties rendered, if you end up owing greater then $3,000 on your final tax returns. I can't say they will charge these, but they can. Unless it has changed dramatically in the last 10 years or so.
When I said "choice", I meant to pay the full amount at the end of that year (never have over $2K balance owing next April), vs multiple times during that year.
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Re: Tax Installments

Post by Insomniac » 02 May 2016 11:58

like_to_retire wrote: I have always wondered when my RRIF starts if I'll be able to instruct my discount broker (TDDI) to take a specific percentage or amount of tax just like I do with CPP?

ltr
My broker allows that. On the tax section of the RRIF form, you can select "Regulatory Standard", "Percent on entire amount" or "Percent on excess amount". If you select percent, you have to tell them how much.

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Re: Tax Installments

Post by like_to_retire » 02 May 2016 12:49

Insomniac wrote:My broker allows that. On the tax section of the RRIF form, you can select "Regulatory Standard", "Percent on entire amount" or "Percent on excess amount". If you select percent, you have to tell them how much.
Thanks, that's perfect. When that time comes, my thoughts are to use the RRIF mandatory withdrawals to bring my taxes below the installment threshold and then use whatever cash I get to put into the TFSA.

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Re: Tax Installments

Post by IdOp » 02 May 2016 13:59

I also found this discussion interesting. Thanks to freedom_2008 for raising the idea. If I understand it right --- and I'm not entirely sure that I do --- ISTM there are two cases to consider.

1. For someone who doesn't have to make installment payments yet, but is about to have to, then the December payment seems like a way to prevent the onset of installments. This would have some modest but welcome benefits. I don't see a significant downside, since if you screw up and pay too little, the worst than can happen is CRA tells you to start making installment payments, which is what would have happened anyway, but there's no penalty payment.

2. For someone who's already on the installment treadmill though, I don't see that this can work for them (and I don't think anyone claimed it does), because for them any voluntary payment will be treated as more installments, and those don't count toward getting you off installments. What would be needed is more "withheld at source" payments, as might be done with a RRIF. But failing that, presumably you're stuck with the installments in this case.

Do I have that right?

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Re: Tax Installments

Post by AltaRed » 02 May 2016 14:24

In the case of #2, there would be a transition year and I see that as a real possibility when I start my RRIF. Have a large withholding in Dec of Year X roughly equal to the installment payments that year. Come April and there will be a big refund for Year X in year X+1, but after that, no more installment payments. Indeed, one could argue one might be able to ignore the March and June installment payments for Year X+1 because one already knows they will be paid up for Year X+1 by the time tax time comes in Year X+2.

Is the opportunity cost of a 'one time' 5 month tax prepayment to get this started worth getting off the installment payment bandwagon? Depends on the individual.
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Re: Tax Installments

Post by adrian2 » 02 May 2016 14:27

Remember, the installment bandwagon is triggered by 2 out of 3 years tax due over $3k, so a one time event would not start it by itself.
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Re: Tax Installments

Post by IdOp » 02 May 2016 14:33

Maybe you could get it down to 3 months(??) if you withdraw-and-pay late, and file taxes ASAP?

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Re: Tax Installments

Post by like_to_retire » 02 May 2016 14:36

AltaRed wrote:s the opportunity cost of a 'one time' 5 month tax prepayment to get this started worth getting off the installment payment bandwagon? Depends on the individual.
I know it all comes out in the wash, but for me there's a psychological aversion to paying the installments. Every 3 months I have to fork over thousands of my cash, and then again in April, along with two times a year for city taxes. It all kinda piles up and I seem to be doing nothing but paying tax. I don't know why, but when I have it withheld at source, it doesn't hurt as much, even though I know it's all the same by the next April.

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Re: Tax Installments

Post by like_to_retire » 14 Jun 2016 13:07

Reminder to pay your federal tax instalment - due tomorrow...............

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Re: Tax Installments

Post by kcowan » 14 Jun 2016 13:27

Reminder

Check that you have enough to cover that payment that you scheduled after you received the CRA Notice months ago.

Make sure you have enough balance/overdraft protection to cover.
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Re: Tax Installments

Post by OnlyMyOpinion » 27 Aug 2016 14:48

Received notice in the mail last week for installment amounts due Sept. 15 and Dec. 15. :(

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Re: Tax Installments

Post by like_to_retire » 27 Aug 2016 15:24

OnlyMyOpinion wrote:Received notice in the mail last week for installment amounts due Sept. 15 and Dec. 15. :(
I switched to email notifications from CRA and it worked nicely. I went to the site after the email notification and there was the latest instalment notice.

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Re: Tax Installments

Post by OnlyMyOpinion » 27 Aug 2016 15:38

like_to_retire wrote:
OnlyMyOpinion wrote:Received notice in the mail last week for installment amounts due Sept. 15 and Dec. 15. :(
I switched to email notifications from CRA and it worked nicely. I went to the site after the email notification and there was the latest instalment notice. ltr
Still here clinging to the illusion of anonymity I guess. Not sure why, they already know pretty well everything, inluding the prescriptions I take and probably the colour of my underwear. :(

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Re: Tax Installments

Post by fundamental » 09 Sep 2016 09:11

Reminder to pay your federal tax installment - due Thursday
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