Personal Finance

CRA wants me to pre-pay 2020 taxes in installments IN Sept/Dec 2020. Can this right?

  • Last Updated:
  • Aug 21st, 2020 9:17 pm
[OP]
Deal Addict
Aug 18, 2003
1044 posts
265 upvotes
YVR

CRA wants me to pre-pay 2020 taxes in installments IN Sept/Dec 2020. Can this right?

Got a letter from CRA. Basically they want me to pay this year's taxes in THIS year. What happened to paying in May 2021? They say it's for people in situations where too much taxes are witheld. For example a pensioner or self employed. I've never heard of pre-paying taxes. And they charge interest if you don't pay?

Anyone in the same boat?

"We sent you this instalment reminder because you may have to pay income tax by instalments
in 2020.
You have to pay tax by instalments in 2020 if your net tax owing for 2020 will be
over $3,000 (over $1,800 if you live in Quebec). If not, you can disregard this notice.
You can pay your tax by using one of the following options.
1. No-calculation option
- Pay the amount shown in box 2 by the due date in box 1.
- The amount in box 2 is equal to your 2019 net tax owing and any CPP contributions
and EI premiums payable.
2. Prior-year option
Pay three quarters of the total of your 2019 net tax owing and three quarters of any
CPP contributions and EI premiums payable on September 15, and pay one quarter on
December 15, 2020.
3. Current-year option
Pay three quarters of the total of your estimated 2020 net tax owing and three
quarters of any CPP contributions and EI premiums payable on September 15, and pay
one quarter on December 15, 2020.
NOTE: The September 15, 2020 due date has been deferred to September 30, 2020.
For more information about instalment options and possible instalment interest charges, go
to canada.ca/taxes-instalments."
To learn who rules over you, simply find out who you are not allowed to criticize.
19 replies
Member
User avatar
Sep 16, 2015
243 posts
453 upvotes
Calgary, AB
If you are a salaried employee, your taxes are deducted from each paycheck throughout the year. When you file your taxes, you typically don't have a significant amount owing.

If you're self employed and paid a salary, you should also be deducting taxes from each paycheck throughout the year. Things get a bit trickier if you're paying yourself dividends. In that situation, you can end the year with a significant amount owing to the CRA. In that case, they will ask you to make installment payments.
Member
Jun 16, 2009
459 posts
200 upvotes
Mississauga
Yes this is right. My wife is self employed she has to make quarterly payments. I pay taxes in advance too. It is deducted from my pay cheque every 2 weeks. This is to make fair for all those who are not self employed.
Deal Guru
User avatar
Mar 23, 2008
11510 posts
7798 upvotes
Edmonton
Charles wrote: Got a letter from CRA. Basically they want me to pay this year's taxes in THIS year. What happened to paying in May 2021? They say it's for people in situations where too much taxes are witheld. For example a pensioner or self employed. I've never heard of pre-paying taxes. And they charge interest if you don't pay?

Anyone in the same boat?

"We sent you this instalment reminder because you may have to pay income tax by instalments
in 2020.
You have to pay tax by instalments in 2020 if your net tax owing for 2020 will be
over $3,000 (over $1,800 if you live in Quebec). If not, you can disregard this notice.
You can pay your tax by using one of the following options.
1. No-calculation option
- Pay the amount shown in box 2 by the due date in box 1.
- The amount in box 2 is equal to your 2019 net tax owing and any CPP contributions
and EI premiums payable.
2. Prior-year option
Pay three quarters of the total of your 2019 net tax owing and three quarters of any
CPP contributions and EI premiums payable on September 15, and pay one quarter on
December 15, 2020.
3. Current-year option
Pay three quarters of the total of your estimated 2020 net tax owing and three
quarters of any CPP contributions and EI premiums payable on September 15, and pay
one quarter on December 15, 2020.
NOTE: The September 15, 2020 due date has been deferred to September 30, 2020.
For more information about instalment options and possible instalment interest charges, go
to canada.ca/taxes-instalments."
Did you owe more than $3000 in 2019?

C
Deal Addict
Feb 16, 2018
1235 posts
1240 upvotes
it's always been like this if you will owe more than $3k. Quarterly installments are normal
Deal Expert
User avatar
Jul 30, 2007
27764 posts
12837 upvotes
Toronto
^ if yes, you are required. If you ignore, cra will levy interest and penalties on the arrears.

CRA does not send out random letter . Grinning Face With Smiling Eyes
Deal Addict
Jan 19, 2017
3299 posts
1823 upvotes
Charles wrote: Got a letter from CRA. Basically they want me to pay this year's taxes in THIS year. What happened to paying in May 2021? They say it's for people in situations where too much taxes are witheld. For example a pensioner or self employed. I've never heard of pre-paying taxes. And they charge interest if you don't pay?

Anyone in the same boat?

"We sent you this instalment reminder because you may have to pay income tax by instalments
in 2020.
You have to pay tax by instalments in 2020 if your net tax owing for 2020 will be
over $3,000 (over $1,800 if you live in Quebec). If not, you can disregard this notice.
You can pay your tax by using one of the following options.
1. No-calculation option
- Pay the amount shown in box 2 by the due date in box 1.
- The amount in box 2 is equal to your 2019 net tax owing and any CPP contributions
and EI premiums payable.
2. Prior-year option
Pay three quarters of the total of your 2019 net tax owing and three quarters of any
CPP contributions and EI premiums payable on September 15, and pay one quarter on
December 15, 2020.
3. Current-year option
Pay three quarters of the total of your estimated 2020 net tax owing and three
quarters of any CPP contributions and EI premiums payable on September 15, and pay
one quarter on December 15, 2020.
NOTE: The September 15, 2020 due date has been deferred to September 30, 2020.
For more information about instalment options and possible instalment interest charges, go
to canada.ca/taxes-instalments."
Since you have never had to pay installments before, consider yourself lucky because it means you had higher income in 2019 than before.
Member
Jun 6, 2014
212 posts
74 upvotes
Toronto, ON
Yes it is correct. It is not pre-paying taxes. 2020 taxes should be paid in 2020. Not in 2021.
If you owe $3000 or less you can pay when you file your return in 2021, but that's only because it is considered a small amount and makes more sense administratively to allow payment at tax filing time.
Sr. Member
Sep 14, 2012
858 posts
517 upvotes
Montreal, QC
Charles wrote: You have to pay tax by instalments in 2020 if your net tax owing for 2020 will be
over $3,000 (over $1,800 if you live in Quebec). If not, you can disregard this notice.
You can pay your tax by using one of the following options.
I received a letter like that a few years ago. I basically disregarded it since the year that it was based on, I had to pay around $2k to the federal government and since I live in Quebec, I had to pay ~$3k to the provincial government (in the province of Quebec, we need to file 2 income tax returns by April 30).

I ignored the letter because I knew that the year that the notice of assessment and letter were based on was an unusual year since I was working part-time someplace and working full-time at another place. My full-time employer was deducting taxes from my salary based on my salary at their establishment whereas my part-time employer was deducting taxes based on my part-time salary which obviously wasn't enough considering adding my part-time salary to my full-time salary bumped me up to the next tax bracket. Since it bumped up my tax bracket, this meant my full time employer wasn't deducting enough taxes as well since they were basing their withholding tax based only on their salary and my marginal tax rate on this salary. All of this and my investment income for that year meant that I needed to pay a lot more income tax in April 30th.

The government wants installment payments since they like giving refunds on April 30th. It means that they had taxpayers' money interest free for approximately 1 year. It is the same reason why they want quarterly payments even if someone has the money saved and can make the full payment on April 30th when they file their taxes.
Deal Fanatic
Oct 26, 2008
6303 posts
1947 upvotes
BC
The crux here is:

CRA estimates your tax owing for the current year to be over $3K based on what you owed in two previous tax years.

That is, they allow for one year being abnormal, but if there is a pattern emerging then you must pay by instalments or face interest charges eventually.

(It doesn't just relate to employment income, and applies to all sorts of tax payers, not just the self-employed.)

If you are confident that your amount owing for the current year is in fact going to be less than $3K, then you can ignore the letter as they state.

For example, if you just bought a house and don't have bank interest from that big chunk of money you had in previous years.
[OP]
Deal Addict
Aug 18, 2003
1044 posts
265 upvotes
YVR
thank you all. makes sense now. just a surprise...
To learn who rules over you, simply find out who you are not allowed to criticize.
Deal Addict
Nov 4, 2007
1501 posts
582 upvotes
Toronto
I just got the same letter. I stopped working a few years back and my income is based solely on investments.

In 2018, I owed $3,050
In 2019, I owed $20,000 due to rebalancing my portfolio.
Prior to 2018, all my tax returns resulted in refunds typically in the $1000's each year.

CRA is asking me to pay for 2020 the amounts of $10,000 in Sept and $10,000 in Dec.

The problem is that I have no idea how much tax I will be owing in 2020. It all depends on Distributions, Interests and Capital Gains (through T3 and T5 and T5008) I have throughout the year. If I decide to sell stock in Dec of 2020 based on the market, this can drastically change what I will be taxed as whether I declare a capital gain or loss.

I'd rather not have to pay the extra $20k now, but I also don't want to be charged any penalties in interest if I end up having to pay more than $3,000 in taxes.

Any suggestions?

Also aren't these supposed to be quarterly installments? So why is it half in Sept and half in Dec based on the amount from 2019?
Newbie
Mar 18, 2006
92 posts
39 upvotes
macnut wrote: The crux here is:

CRA estimates your tax owing for the current year to be over $3K based on what you owed in two previous tax years.

That is, they allow for one year being abnormal, but if there is a pattern emerging then you must pay by instalments or face interest charges eventually.

(It doesn't just relate to employment income, and applies to all sorts of tax payers, not just the self-employed.)
I agree with some of your statements...like >$3,000 in 2019 and their logic applying to all sorts of employment types.

Reason:
Wife got the same letter dated Aug 14th. She only had an amount owing slightly larger than $3,000 for her 2019 taxes. In 2018, she had a refund slightly above $2,200. They basically divided her 2019 tax owing and split it into 2 equal payments (due Sep and Dec this year).

Now 2019 was an anomaly for her. She had a significant capital gains amount, which we are not expecting in 2020. But just to be safe, we are going to pay the 2 instalments. Will certainly not have to worry about owing anything for her come next spring nor the CRA hounding us until then.
Deal Addict
Dec 9, 2003
4917 posts
762 upvotes
Calgary
Bottom line:

CRA estimates quarterly payments, if you need to pay less at tax time you get some back; if you need to pay more you pay the extra but with no interest

or

You estimate your quarterly payments (or decide not to pay them); if you need to pay less you get some back; if you need to pay more you pay the extra and pay interest (which is high)

This is totally your choice - you wont be penalized if you get it wrong - except for the interest owed.....
I apologize for offending sensitivities of alt right, alt left, or anyone in the middle, for humor or perspectives, for my maturity and occasional errors. I apologize for misunderstandings on gender, religion, politics, race or deals.
Deal Addict
Dec 28, 2007
1001 posts
524 upvotes
kasm wrote: I just got the same letter. I stopped working a few years back and my income is based solely on investments.

In 2018, I owed $3,050
In 2019, I owed $20,000 due to rebalancing my portfolio.
Prior to 2018, all my tax returns resulted in refunds typically in the $1000's each year.

CRA is asking me to pay for 2020 the amounts of $10,000 in Sept and $10,000 in Dec.

The problem is that I have no idea how much tax I will be owing in 2020. It all depends on Distributions, Interests and Capital Gains (through T3 and T5 and T5008) I have throughout the year. If I decide to sell stock in Dec of 2020 based on the market, this can drastically change what I will be taxed as whether I declare a capital gain or loss.

I'd rather not have to pay the extra $20k now, but I also don't want to be charged any penalties in interest if I end up having to pay more than $3,000 in taxes.

Any suggestions?

Also aren't these supposed to be quarterly installments? So why is it half in Sept and half in Dec based on the amount from 2019?
If it's your first year of installments, it's half in Sept and half in Dec because the CRA wouldn't know the 2019 numbers in time to send out installment notices for March and June. Expect to receive $5000 installment requests for March and June 2021.

Depending on how much income you have so far this year, you could make a 'large' installment payment in September. By December 15, you will hopefully have a better idea of your 2020 income, and can adjust (or omit) the December installment accordingly. e.g. if you currently estimate your 2020 taxes to be $4000, you could pay $4000 in September. In December, if you estimate your taxes to be $8000 thanks to some capital gains, then pay $4000 in December. If you still think your taxes will be $4000 (or less), skip the December installment.

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