Donut wrote:This is a shock to me as I had based my installments on an estimate of tax owing and was of the understanding that if I got within $2,000 of being correct, there was no interest or penalty charged. I now seems this rule has changed.
There is no method called "estimate". There has been no change in rule.
You pay based on the (1) no calculation method (CRA's estimate based on past 2 years), on the (2) prior-year method (exactly what you paid last year) or on the (3) current year method (your accurate prediction of the exact amount you'll have to pay). There is no such "arriving within $2,000" rule. You have to be bang on. The $2,000 rule (now $3,000) is used to determine whether you'll have to make installments. Interest is due on the entire amount you had to pay, unless it's less than $25.
I have filed an objection on the grounds that, because of the changes in tax rules such as increased tax free pension allowance, pension splitting etc, it is not realistic to expect one to be able to make totally accurate guestimates.
Their answer will be: that's why you should have chosen the no-calc or prior-year method. It's very clear from P110 that you're on the hook for exactly estimating your total, and paying interests on any amount by which your guestimate missed the mark (unless the total interest is less than $25).
In the end, I know I will still have to pay the $50.
That would be my guess too
Always use prior-year or no-calc unless you know you'll be owing substantially less than either of these methods. Then, if you use the current year method, make sure you overestimate your liability by a reasonable amount.
If you have underpaid your first installment for 2008 already, covering the difference now will reduce your interest charges, and prepaying the next installment can further reduce it (CRA credits you interest against late payments when you make other payments early).