It is the month of February, and you receive an envelope in the mail – a letter from the Government of Canada and in particular the Canada Revenue Agency (CRA). Inside you discover a Remittance Reminder and Remittance Payment Voucher, in which you are asked to pay forward your 2023 personal income taxes.
The question we ask ourselves is, “what do I do?” Re-seal the envelope and put it away? (This does happen 😊) or do I pay what is requested on or before March 15th and June 15th? What happens if I do not pay and owe taxes when my accountant files my return?
If the installment reminder is shoved away or just not paid and if there are taxes owing when your personal returns are filed, then the CRA will levy penalties and interest which will add up.
If you pay what is asked for and the amount is more than the tax owing upon filing your tax returns, a refund with interest will be issued from the CRA.
What happens for instance, if you had an unusually high-income year because you sold investments in 2021, realizing large capital gains and had a correspondingly unusually high tax bill? Well, that is the basis upon which CRA will be calculating what they will be requesting for March 15th and June 15th. Furthermore, you estimate that the 2023 income will be nowhere near what 2021 came in at. Do I still have to pay these installments? Remember, the CRA requires us to prepay our taxes through these forms. So, if my income will be substantially lower in 2023 than it was in 2021, then I can pay a lower amount. The penalties and interest referred to above only become due when I do not pay the requested amount and I still end up owing taxes upon filing my returns.
What if I will have some income from investments in 2023 but I am not clear on what this will mean for my final 2023 tax bill? Speak to your accountant and ask for them to estimate the 2023 taxes based on the information you have. This way you will be able to make an informed decision.
The general rule of thumb is do not re-seal the envelope and file it away, but do what many of our clients do and ask, “Should I be paying this installment?”
Quick Answer: Yes, you should pay any installment requests received from the CRA. Failure to pay may result in penalties and interest being applied to the outstanding amount. It is important to review the installment request to ensure that the amount requested is accurate and you have the funds available to make the payment.
