# Prepaid, scheduled tax payments



## cannon_fodder (Apr 3, 2009)

Does CRA institute quarterly tax instalments if you make a certain threshold of investment income resulting in a significant income tax bill?


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## CanadianCapitalist (Mar 31, 2009)

Check out this page on the CRA website:

Paying your income tax by instalments


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## cannon_fodder (Apr 3, 2009)

Wow - the threshold is only $3,000. There is no way I can escape this unless I increase taxes withheld by my employer by only taking half of my current take home.


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## Jungle (Feb 17, 2010)

If you didn't make so much money, you would not have this problem


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## kcowan (Jul 1, 2010)

You can send them a cheque or electronic payment as soon as you are aware of any extra balance owing. For example, you sell a stock and estimate the CG to be 50k so you remit a payment to your interim CRA payments account of 10k. Now the net amount due will be less than 3k for sure so there will be no penalty.

Avoiding CRA penalties is one of the better investments you can make.


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## cannon_fodder (Apr 3, 2009)

Penalty?! You can be assessed a penalty if this is the first year you were in this situation? In 2009 I'm guessing (I'm out of the country so I don't have the details) my CG was $250k and this year it's about $270k. Could I be penalized for 2009 and 2010 if I don't submit my 2009 tax return and amount owing until April 30 and a penalty for 2010 if I don't submit 25% of tax owing by March?

Are the penalties a percentage of tax owing prorated for time?


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## fraser (May 15, 2010)

I have not filed 2010 yet and CRA has just sent me notices to start paying FY2011 installments-quarterly payments.


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## OhGreatGuru (May 24, 2009)

cannon_fodder said:


> Penalty?! You can be assessed a penalty if this is the first year you were in this situation? In 2009 I'm guessing (I'm out of the country so I don't have the details) my CG was $250k and this year it's about $270k. Could I be penalized for 2009 and 2010 if I don't submit my 2009 tax return and amount owing until April 30 and a penalty for 2010 if I don't submit 25% of tax owing by March?
> 
> Are the penalties a percentage of tax owing prorated for time?


If you haven't filed for 2009 you are already overdue, (unless you fall under some obscure provision allowing you to file a year late that I haven't heard of) and yes you will be assessed penalties, whether you needed to be on the instalment plan or not. 

Of course if you do not qualify as a "resident" for the purposes of income tax act, you may not have to file, and you owe nothing. But that is a complicated area. (See CRA's Guide http://www.cra-arc.gc.ca/E/pub/tg/5013-g/README.html ) I believe non-residents have to pay tax on the disposition of Canadian property.

If you are making over $250K annually in capital gains in two consecutive tax years, I think you should be asking for advice from a tax acountant, not on an internet forum. In fact, if you are seriously in arrears, you should consult a tax lawyer (because they are protected by client confidentiality laws) to negotiate a settlement on your behalf with CRA.

If you file your returns on time, you don't need to start paying instalments until they send you a notice to do so. (Exception - I believe on business income you are required to make estimates of your tax bill and pay quarterly instalments during your business year.)


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## cannon_fodder (Apr 3, 2009)

Sorry for the confusion. I meant 2010 and 2011, not 2009 and 2010. Thus, in a couple of months when I get back to Canada (and I'm a resident but away on business for a couple of months) I will file my 2010 return. But I was planning to wait until April 30th.

Also, so far this year I'm projecting to have a larger capital gain amount in the next 30 days. I had planned on seeing an accountant for a slightly different reason when I return.

But am I interpreting that if I don't voluntarily submit a certain amount of money to CRA for *2011* upon my return, they will penalise me?

Would they also penalise me for 2010 taxation year by waiting until April 30 before submitting my income tax return?


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## OhGreatGuru (May 24, 2009)

cannon_fodder said:


> ...
> But am I interpreting that if I don't voluntarily submit a certain amount of money to CRA for *2011* upon my return, they will penalise me?
> 
> Would they also penalise me for 2010 taxation year by waiting until April 30 before submitting my income tax return?


Assuming your income for 2011 was not business income, and that you have not previously received a notice to pay in instalments, you will not be penalized for 2010.

However, based on your 2010 return, they will send you a notice to make instalment payments in Sept. & Dec. 2011 for the 2011 tax year. If you expect your income in 2011 to be significantly different than in 2010, the notice will give you an option to pay based on your estimate for the current year instead.

There is a CRA booklet on this subject - I believe P110.


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## cannon_fodder (Apr 3, 2009)

Thank you very much, OGG. I've just been fortunate with some commodity based investments so this windfall kind of snuck up on me in the last few months.


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## cannon_fodder (Apr 3, 2009)

CRA assessment came back. I'm guessing because my previous capital losses offset a large portion of my gains my tax wasnt owing sufficient to trigger future instalment payments. 

I know I won't be so lucky next year.


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## kcowan (Jul 1, 2010)

cannon_fodder said:


> I know I won't be so lucky next year.


You have a strange definition of luck!


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## Square Root (Jan 30, 2010)

There are two ways to calculate installments. Either pay what the balance owing was last year or what the expected balance owing is this year (whichever is lower).I always manage to get a refund every second year ( by how I exercise employee options and claim alimony) so I have never had to pay installments. Eventually as my dividends increase installments will be due.


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## cannon_fodder (Apr 3, 2009)

kcowan said:


> You have a strange definition of luck!


People have stated to me that paying a large amount of capital gains tax is lucky because it means there were tremendous capital gains. The capital gains sound great until the next year when you have to come up with $50k, $100k or more just to cover taxes. Taxes which go to the government and, in return, do not result in any additional personal benefit to soften the tax burden. 

I'm really going to hate next years filing.


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## cannon_fodder (Apr 3, 2009)

Square Root said:


> There are two ways to calculate installments. Either pay what the balance owing was last year or what the expected balance owing is this year (whichever is lower).I always manage to get a refund every second year ( by how I exercise employee options and claim alimony) so I have never had to pay installments. Eventually as my dividends increase installments will be due.


I'll be making an appointment with an accountant to figure out how best to handle this situation. My strategy involves commodities and results in trades several times a year thus capital gains are being realized almost monthly. I'm anticipating a big tax bill AND a payment schedule next year based on this year's gains. I don't know how traders who are forced to have their profits treated as "earned" income rather than capital gains can live with that situation.


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## FrugalTrader (Oct 13, 2008)

What we did was simply take the tax bill owing and divided it by four for the next years quarterly installment payments. If you owe more than the total of installment payments by next year end, you'll have a tax owning and installment payments for the following year will be adjusted again. If you owe less, than the govt will issue a refund.

Note though that if you are making installment payments, and you expect the tax bill for the current year to be less than the tax your paying in, you can pay less on your installments. However, if you are wrong, and you owe more by year end, the government will charge interest on the amount owning from the reduced installments.


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## balexis (Apr 4, 2009)

FrugalTrader said:


> However, if you are wrong, and you owe more by year end, the government will charge interest on the amount owning from the reduced installments.


Ouch, did not know that. But I guess it makes sense.


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## cannon_fodder (Apr 3, 2009)

FT

But that's only if you've been asked to implement quarterly payments for the first time, right? They wouldn't charge you interest if it's the first time you have a big (eg > $30k) tax bill would they?


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## FrugalTrader (Oct 13, 2008)

Yes, I believe if you owe more than $3k this year and either of the previous two years, you'll need to pay installments. For me, I had my accountant indicate that I'd need to pay installments. Following that, CRA sends a notice indicating the expected payments. I wrote an article a little while back that may help:
http://www.milliondollarjourney.com/making-tax-installment-payments.htm


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## kcowan (Jul 1, 2010)

I had a case where I neglected installments but paid them when I completed my income tax, paying both instalments on May 1. They did not penalize me for late payment of the March 15th one. Not sure the rules but the idea of having less than $3000 owing rings a bell. Over that and there are penalties and interest.


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## cannon_fodder (Apr 3, 2009)

My assessment mentioned instalment payments but only that I didn't have to use that method. I assume because this was the first time for me. 

I will have to find out what the penalties and interest costs are. I can easily make a lot of capital gains if that money is left with me rather than pay the government when they want it. 

I make more, the govt makes more - it's a win-win!


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## fraser (May 15, 2010)

I have to pay by installments. It seems to me that my accountant told me that we need to determine by Sept. 30 if there will be excess tax owing. If this is the case, we must make our installments. If we don't (by Sept 30) then we will be subject to interest charges.


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## Eclectic12 (Oct 20, 2010)

cannon_fodder said:


> People have stated to me that paying a large amount of capital gains tax is lucky because it means there were tremendous capital gains. The capital gains sound great until the next year when you have to come up with $50k, $100k or more just to cover taxes. Taxes which go to the government and, in return, do not result in any additional personal benefit to soften the tax burden.
> 
> I'm really going to hate next years filing.


Huh? 

Simply because you have a capital gains tax bill the following year, you are unhappy? 

I think you need to take a look at the bigger picture.


Let's try a comparison:

a) my employer pays me $1 in salary. Income tax is on 100%, the full amount. Then add CPP and a whole host of taxes so, say $0.60 is deposited to my bank account with about $0.40 in taxes paid during the year.

b) I make $1 in capital gains. I get to use the $1 until I file my taxes the following year. Then, on $0.50 I owe my personal tax rate - if I use the same tax rate as a), that is $0.50 x .4 = $0.20


So if I had the choice, I'd much prefer to able to use my money longer and pay less in taxes, as well as pay the taxes the following year.


Sure - it's a pain to keep on top of, estimate and put in place plans to make sure tax filing is smooth but IMO, it beats the other options such as salary or interest.


Cheers


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## cannon_fodder (Apr 3, 2009)

Eclectic12 said:


> Huh?
> 
> Simply because you have a capital gains tax bill the following year, you are unhappy?
> 
> ...


I apologize for going off on a tangent. This was already discussed in another thread - the idea that those who pay a high amount of taxes don't receive social benefits commensurate with those high taxes. I can't imagine what it would be like to be subject to millions of dollars of taxes annually. Does the Minister of Finance pay them a visit thanking them for their business? lol

In the same vein, I hate the idea that the Fed/Prov governments can tax a private used car sale over and over again. 

I've been conditioned to expect taxes on employment income. However, taxes on investment income where I take the risk and create and implement a strategy but the govt comes in and takes 23% feel offensive as the tax bill gets to staggering amounts. </rant>

Back on topic, with scheduled tax payments you only defer taxes by months -which I hope to fully take advantage of.


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## kcowan (Jul 1, 2010)

cannon_fodder said:


> ...I've been conditioned to expect taxes on employment income. However, taxes on investment income where I take the risk and create and implement a strategy but the govt comes in and takes 23% feel offensive as the tax bill gets to staggering amounts. ...


I think you have been conditioned to accept taxes withheld at source. When you get retired and live off your investments, no taxes are withheld. So you had better get used to it. Because you will be sending in big payments four times a year.


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## Eclectic12 (Oct 20, 2010)

cannon_fodder said:


> I apologize for going off on a tangent. This was already discussed in another thread - the idea that those who pay a high amount of taxes don't receive social benefits commensurate with those high taxes.
> 
> [ ... ]
> 
> ...


For the tangent - bear in mind that if that much tax is being assessed, there are also a lot more options available to reduce taxes than the average person is able to use. Example include but are not limited to RRSPs, flow-through shares, charitable donations, incorporation etc. etc.

While the tangent is interesting (and worthy of a separate thread), I'm still puzzled why capital gains tax is worth so much of you energy and time.

Using the following link, I pulled down last year's tax form for Ontario.
http://www.peeltech.ca/mytax/register2010.html

If I plug in interest income of $10,390, the tax bill is $1.20 which is rounded down to zero.

If I plug in $200K in capital gains, Canadian company dividends, income or interest, I get the following tax bills owing: capital gains results in $32,914.72, while Canadian eligible dividends results in $38,268.99, income results in $72,152.08 and interest results in *$78,975.59*


Since the capital gains tax is less than half that of interest/income, I'd be happy to be so tax efficient and save my energy for trying to influence the system.


Now fully back on the topic of scheduled tax payments, if you are really keen on avoiding the installments as well as avoiding paying the gov't, you can always put off the day you can't avoid it by using selling some of your losing investments, RRSPs, Charitable donations, Political Party donations etc. to get below the $3K limit.


Cheers


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