What You Need to Know About Paying Taxes by InstallmentsBrian Jang ON May 18, 2019
No one really enjoys paying income tax. It becomes even less agreeable when it turns out to be a large amount to be paid, especially if you do not have the funds available, or would be left in a difficult position financially upon payment.
When making large purchases, consumers often seek to make payments in installments. The Canadian Revenue Agency (CRA) also accepts payment in installments. And as a taxpayer with a large balance owing, you may even be required to make your payments this way. Thus, instead of making a single payment before April 30th, you would make payments over the course of the year. Miss one of these payments, however, and you’ll be facing significant penalties and interest.
To help you avoid missing payments, the CRA will send you reminder letters in the mail with the amount to be paid and the due date. You will be required to make payments in installments if your balance owing is greater than $3,000 in the current year and either of the previous two years.
How Your Installment Payments are Calculated
If the amount owing is high enough that you are required to pay by installment, you will have three options available to you:
- Option 1: No calculation. If your income, deductions, and tax credits are generally consistent each year, then this option is your best bet.
- Option 2: Prior year. This option is your top choice if your income deductions, and credits are about the same as the previous year but differ significantly from the amounts two years ago.
- Option 3: Current year. If your income, deductions and credits vary significantly from the previous two years, this option will be the one you want.
Making Installment Payments
In the event that you are required to make payments in installments, you will have a choice of payment methods. The CRA will send you an installment reminder package, and unless you choose to make pre-authorized debit payments, they will provide you with and Installment Remittance Voucher (Form INNS3). This will allow you to choose one of the following payment options:
- Bank Branch. You will be able to make your payment at any bank or credit union across Canada. To do so, you will need to bring a copy of the INNS3 form. If you do not, payment will not be accepted. Be sure to have the teller stamp the form so that you will have proof of payment.
- Electronic Payment. If you choose, you will be able to make your payment online, or through telephone banking. This will also allow you to schedule payments in advance to ensure that no payments are missed, thus avoiding penalties and interest.
- Pre-authorized Debit. You may make payments through pre-authorized debit from your bank account. Visit the CRA’s My Account website in order to set this up. One important thing to note is that these payments continue until cancelled, meaning that unless cancelled the debits will be made even once you no longer owe installments.
- My Payment. Visit the CRA’s website to pay online. You need to have a bank account at a Canadian bank or credit union to make use of this option.
- This option involves sending post-dated cheques or money orders, payable to the Receiver General of Canada. You will need to include a completed Form INNS3 and it is advisable to write your SIN number on the back of the cheque or money order. The address is 875 Heron Road, Ottawa On, K1A 1B1.
Paying your taxes by installment is easy and convenient. Simply follow the guidelines above and ensure that all your installments are paid on time to avoid penalties.