Tax Instalments

Income tax policy, rules, problems, strategy and software. Property and consumption taxes too.
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AltaRed
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Re: Tax Instalments

Post by AltaRed »

fundamental wrote:Reminder to pay your federal tax installment - due Thursday
:thumbsup: Auto-scheduled via Bill Payments.
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Re: Tax Instalments

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Paid mine earlier this week. In Bavaria on biking trip. Could have scheduled it but was afraid I would forget to transfer the funds into my chequing acct. Just simpler to pay the damn thing before I left.
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Re: Tax Instalments

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Somehow we've never had to pay taxes with installments. We project our next years taxes and ensure we have the funds available when needed. Might seem like a smaller amount by installments, but we do earn some interest over the year.
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Re: Tax Instalments

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cannew wrote:Somehow we've never had to pay taxes with installments. We project our next years taxes and ensure we have the funds available when needed. Might seem like a smaller amount by installments, but we do earn some interest over the year.
Tax installments are not something for the convenience (ease) of the taxpayer; one gets a letter from the CRA with all the gory stuff, and installments are mandatory in certain circumstances.

Projecting next year's taxes and having the money available come next April does nothing to solve the actual issue.
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Re: Tax Instalments

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adrian2 wrote:Tax installments are not something for the convenience (ease) of the taxpayer; one gets a letter from the CRA with all the gory stuff, and installments are mandatory in certain circumstances.
One can also look up these larcenous requirements through the MyCRA system. It details your current vig and when it is due.
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Re: Tax Instalments

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Actually, I think the rules are pretty reasonable and make pretty good sense to me. Do you think there is a better way to do it that is fair to both parties?
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Re: Tax Instalments

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SQRT wrote:Actually, I think the rules are pretty reasonable and make pretty good sense to me. Do you think there is a better way to do it that is fair to both parties?
I agree.
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Re: Tax Instalments

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Taxes have always been a 'pay as you go' system as all employees know with payroll withholding. Should civil servants and goods and services of the gov't not be paid until the end of April each year either? One could argue the gov't is actually being generous (and saves on adminstrative headaches) by not requiring installments on taxes due of $3k or less, or not insisting on monthly payments. Quarterly installments seem quite a reasonable approach.

P.S. For someone who might have to pay $6k annually via installments, that doesn't add up to too many Starbucks in lost interest by having to pay quarterly. Something in the order of $60 pre-tax (@2% interest rate annualized).
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Re: Tax Instalments

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SQRT wrote:Actually, I think the rules are pretty reasonable
As someone who did not like it when I had to start paying installments, I also agree with this statement.
At this stage of the year I am actually cash flow negative. But that is my choice as I choose to make my RRIF/LIF withdrawal lump sum which represents the bulk of my income late in the year.
So it is a question of how you arrange your finances. And as Altared pointed out, employees pay as they go with payroll deductions.
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Re: Tax Instalments

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A mild annoyance --

I find that most of my clients pay me in the second half of the year, especially in the October - December period. But CRA wants its money spread out over the year. So I end up financing the first two installments out of my working capital.

This is not too bad as regards personal income tax -- I can make some adjustments. But HST payments are particularly annoying. Here, I literally have to lend the government the first two installments, at a zero interest rate.

I could move to a system where I file four quarterly HST reports per year, thus eliminating (or greatly reducing) the lead time for payments. But that means filing four times. Since I use an accountant (not strictly necessary but comforting for a law practice), that would increase my cost of doing business.

At today's very low interest rates, I accept making interest-free loans to the government. But it is a mild annoyance, nevertheless.

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Re: Tax Instalments

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Solution? Bill monthly net 30 days and then start charging interest.
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Re: Tax Instalments

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Solution #2: change the HST fiscal year end of your CCPC to July 1, flipping around the issue.

(HST fiscal year does not have to coincide with overall fiscal year end)
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ghariton
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Re: Tax Instalments

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AltaRed wrote:Solution? Bill monthly net 30 days and then start charging interest.
:D
Try that when you are a relatively small contractor and your client is a mega-corporation, with policies that seem to be cast in stone. One of my clients, who shall remain nameless but whose initials are BCE, will cut the check and mail it out on day number 60, even when the invoice has received all approvals and is ready to go after fifteen days. I guess they enjoy the free float -- although it can't be worth much these days. Still, the policy is the policy, or so I'm told.

Anyway, the work seems to get planned in January -- February each year, and it is often April or May before they realize that they are short of resources and I get a phone call. July and August are slow months because the people I need to contact are often away on vacation. The intense work starts after Labour Day and usually peaks in October.
adrian2 wrote:Solution #2: change the HST fiscal year end of your CCPC to July 1, flipping around the issue.
These days the bulk of my work is done as a lawyer, and I never incorporated my law practice. So it functions as a sole proprietorship. Can I elect a different year for HST purposes for a sole proprietorship?

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Re: Tax Instalments

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ghariton wrote:
adrian2 wrote:Solution #2: change the HST fiscal year end of your CCPC to July 1, flipping around the issue.
These days the bulk of my work is done as a lawyer, and I never incorporated my law practice. So it functions as a sole proprietorship. Can I elect a different year for HST purposes for a sole proprietorship?
No, sorry, it won't work in that case.
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Re: Tax Instalments

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I pay quarterly installments. From time to time I get a notice indicating what has been paid and when. However, I also draw from my RRIF. As I draw more from the RRIF than I am forced to, the RRIF custodian with holds and remits taxes. For some reason, this does not show? I know that it is remitted monthly.
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Re: Tax Instalments

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ISTM that you asked a similar question befoe. The amount withheld from your RRIF payments *is* credited against your taxes due and it all comes out in the wash every year.

Example: Your installment payments for Sept16/Dec16/Mar17/June17 are based on the difference betweeen taxes that had been witheld and that owed on your 2015 tax return filed in April. 2015 taxes that would have been withheld included your RRIF withholding tax, and that would have been taken account of in CRA's calculation of your installment payments that you are now paying.

Look at it this way. Had you not been having taxes withheld from your RRIF payments each year, your quarterly installment payments would be higher than they now are.
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tedster
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Re: Tax Instalments

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Likely. I get it. Thanks. Actually what I get is how CRA calculates what I should be paying in installments. However, what I do not get is why I can see that they report what I paid in my installments from my bank account, but do not should what was remitted by the custodian bank. eg. if I paid 1,000 in March, they show that. However, if Nat'l remitted $300, that is not shown.

edited because I thought a bit more. :oops:
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Re: Tax Instalments

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tedster wrote: However, what I do not get is why I can see that they report what I paid in my installments from my bank account, but do not should what was remitted by the custodian bank. eg. if I paid 1,000 in March, they show that. However, if Nat'l remitted $300, that is not shown.
What Nat'l has remitted would show on the statement from them, just as what the employer deducts from your pay cheque shows on your pay stub.

CRA My Account shows what you have paid directly to them.
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Re: Tax Instalments

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adrian2 wrote
What Nat'l has remitted would show on the statement from them, just as what the employer deducts from your pay cheque shows on your pay stub.

CRA My Account shows what you have paid directly to them.
I got that thanks, what I do not understand is why they do not show the remitted stuff as well. Surely it is going into the same file? Anyhow, I suppose it is too much to ask for CRA to do that.

edited to correct misspelling of adrian2's name. :oops:
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Re: Tax Instalments

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tedster wrote:adrian2 wrote
What Nat'l has remitted would show on the statement from them, just as what the employer deducts from your pay cheque shows on your pay stub.

CRA My Account shows what you have paid directly to them.
I got that thanks, what I do not understand is why they do not show the remitted stuff as well. Surely it is going into the same file? Anyhow, I suppose it is too much to ask for CRA to do that.
Employers, and other remitters, don't provide 'real-time info' on who the tax is deducted from. It is reported/reconciled only annually, when T4s are prepared and submitted, etc.

The amounts go into separate lines of your personal tax return, too. Federal line 476 for Tax paid by Instalments, and Federal line 437 for Income tax deducted (by employers and RRIFs and Pension plans etc).
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Re: Tax Instalments

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DavidR wrote
The amounts go into separate lines of your personal tax return, too. Federal line 476 for Tax paid by Instalments, and Federal line 437 for Income tax deducted (by employers and RRIFs and Pension plans etc).
I see. Yet the amount they tell us to remit by installments represent the total of the two lines? This would mean that I am overpaying by the amount on line 437?
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Re: Tax Instalments

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tedster wrote:DavidR wrote
The amounts go into separate lines of your personal tax return, too. Federal line 476 for Tax paid by Instalments, and Federal line 437 for Income tax deducted (by employers and RRIFs and Pension plans etc).
I see. Yet the amount they tell us to remit by installments represent the total of the two lines?
No. They are asking for you to pay installments equal to the difference between your total taxes for 2015 and the Income tax deducted in 2015.
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Re: Tax Instalments

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DavidR wrote:They are asking for you to pay installments equal to the difference between your total taxes for 2015 and the Income tax deducted in 2015.
Yeah, and it's always seemed reasonable enough to me, even though I hate paying taxes. How else could they possibly do it than look at the previous year's income? I'm thankful they don't ask for monthly instalments. I play around with the amount I have them remove from CPP every year to keep the instalments within reason.

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Re: Tax Instalments

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DavidR wrote
No. They are asking for you to pay installments equal to the difference between your total taxes for 2015 and the Income tax deducted in 2015.
??? The difference between the taxes I eventually paid and the amount that was deducted? No one deducts taxes except Nat'l bank. I admit I am perhaps now confused. Let me see if I understand you. If my total taxes that I ended up paying were say $10,000. Say Nat'l remitted $500. I assume that would be a "deduction?" Hence CRA would ask me to pay a total annual payment in quarterly installments of $9,500 (or $2,375) is that correct?
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Re: Tax Instalments

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tedster wrote: The difference between the taxes I eventually paid and the amount that was deducted? No one deducts taxes except Nat'l bank. I admit I am perhaps now confused. Let me see if I understand you. If my total taxes that I ended up paying were say $10,000. Say Nat'l remitted $500. I assume that would be a "deduction?" Hence CRA would ask me to pay a total annual payment in quarterly installments of $9,500 (or $2,375) is that correct?
Tedster, let me take a stab at clearing up how instalments work.

In February, CRA sends a notice of the next two instalments that will be due Mar 15 and June 15. These first two instalments of the year will be exactly half of the instalments paid from the previous year. It's the best they can do since the notice is sent in February before the April tax return for the previous year is in.

Then in August, CRA sends another notice of the next two instalments that will be due Sept 15 and Dec 15. These last two payments make up the difference once the April tax return reveals the actual taxes for the previous year.

That's it. Simple right?

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