Is CRA mandating tax payers who taxes over $3,000 to enroll in tax instalments program? A few of my clients received letters of instalment notice. They have not opted in the programs. Are any of your clients experiencing the same?
If they owe taxes next spring for 2023, they could see instalment interest charges on their notice of assessment. If there was a one time event triggering the tax and NO expectation of an amount owing, they should be fine.
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It’s been mandatory as long as I can remember. Not optional.
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The only “optional” part of mandatory instalment payments is which method one uses (usually outlined on RAC, MyAccount or on the Instalment Notification).
Failure to pay at least the amount required on the Notification will result in interest charges to the client, assuming similar or greater tax payable from year to year.
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Thank you for all the responses.
2022: client had $650,000+ Capital Gain, a one time event. CRA’s instalment payments are huge.
2023: Expected tax ranges $0 to $10,000 with an optimistic stock market. A good chunk of the money has been given away instead of making tbeneficiaries wait for the will. Making $100,000 in instalments makes no sense.
Some payments are being made: I expect a refund next spring.
Nothing owing on the 2023 return means no instalment interest.
@indiramajorm
CRA notifies individuals of their requirement to make installment payments whenever a trigger event occurs. In 2023 for the 2022 tax assessment years that trigger event was $3000 owing at the time of filing due to net income tax owing in 2022 > $3000.
However, when no installments are made, then no interest or penalties are charged,
if and only if,
no taxes are owing for 2023.
This is where tax planning comes into play.
- Prepare a planning tax return for 2023.
- Estimate taxes owing.
- Run scenarios. ie increase RRSP, estimate interest and penalties, plan client cash flow.
If the funds are in the current tax year’s installment account at the time of filing there is usually no penalty or interest charged.
If there is a bigger bump in taxes owing expected then pay more.
If there is a smaller amount in taxes owing then pay less. Just be sure to leave a margin of safety.
If the client wants to pay monthly and stated installment schedule for cash flow or budgeting reasons, that is possible.
If the client is cash poor, then assess for the full situation. Look at 2022, 2023, and 2023 cash flow availability to meet the expected taxes owing:
CRA past debt?
CRA next year debt expected?
Past installment payments required and met or not met?
Interest cost for borrowing to pay installments vs CRA interest and penalties?
If cash flow is not an issue, then look at RRSP contribution room and RRSP contribution options.
Hope this helps.
Also, given what interest rates are now be careful about the total interest they might accrue on unpaid instalments,
If the interest is more than $1000 in a year CRA has started applying the instalment penalty!
Not fun explaining to a client that on top of 9% interest they also owe penalties!