Taxpayers may need to pay installments if their net tax owing exceeds $3,000 in the current year and either of the two prior years. If so, the due date is December 15th, 2024, or, since Dec 15th is a Sunday, the CRA will consider the payment on time if received on Dec 16th, 2024.
Failing to pay or underpaying installments can result in interest charges and penalties. Interest accrues daily on overdue amounts, based on CRA’s prescribed rates, which can change quarterly. Penalties are imposed if the interest exceeds $1,000 for the year and are calculated as 50% of the difference between the actual interest owed and the higher of $1,000 or 25% of the interest that would have been charged if no installments were made.
To avoid these issues, it’s essential to ensure accurate installment payments using one of CRA’s calculation methods—no calculation, prior year, or current year. You have the option to make payments electronically or through forms provided by the CRA.
Here’s why it’s important:
Avoiding Interest and Penalties: Late or insufficient installment payments result in daily interest charges. If the interest exceeds $1,000, additional penalties may apply, leading to significant extra costs.
Cash Flow Management: Paying installments on time helps you spread your tax liability across the year instead of facing a large lump-sum payment at tax filing time. This can prevent cash flow issues, especially for self-employed individuals or those with irregular income.
Compliance: Meeting the installment deadlines ensures you stay in good standing with the CRA, avoiding stress or complications with your tax account. Consistent compliance also reduces the risk of CRA audits or reviews.
Planning Flexibility: Taxpayers can choose from multiple installment calculation methods, allowing them to align payments with their actual income and deductions. This flexibility can prevent overpayments or underpayments.
In short, keeping up with installment obligations is essential for financial health and avoiding unnecessary costs. Consulting with a CPA can help ensure accurate planning and payment.
Exceptions to the quarterly due dates:
Farmers and fishers
If your main source of income is self-employment income from farming or fishing, you only have one installment payment due date per year.
You will receive an installment reminder in November and must make your payments in the current year by December 31.
Deceased person
If a person who must pay tax in installments passes away during the year, they are not required to make the installment payments due on or after the date of death.