Choosing the wrong CRA tax instalment payment option can lead to arrears interest and even instalment penalties. Find out more.
But before jumping into the details of the case, let’s review the tax instalment system. Under the Income Tax Act, quarterly tax instalments are required for this tax year if your net tax owing for 2022 will be more than $3,000 and was also greater than $3,000 in either 2021 or 2020.Sign up to receive the daily top stories from the Financial Post, a division of Postmedia Network Inc.By clicking on the sign up button you consent to receive the above newsletter from Postmedia Network Inc.
This option is useful if your 2022 income will be significantly less than 2021. But it’s also the riskiest method because if you’re wrong, you can end up being charged instalment interest, compounded daily at the prescribed interest rate , and even an instalment penalty if the instalment interest is more than $1,000. That’s what happened in this most recent case involving an Alberta couple.
According to the couple, this pre-budget speculation “created an unforeseen urgency, necessity and desirability to declare the dividend.” This, in turn, “materially increased both incomes and related tax liability, and correspondingly their respective tax instalments.”
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Paying taxes in instalments can bring trouble with the CRA if you make this mistakeChoosing the wrong CRA tax instalment payment option can lead to arrears interest and even instalment penalties. Find out more.
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