When are tax installments necessary?
Interest and penalty charges on late instalments and for those not sure: When do you have to pay instalments-
You may have to pay tax instalments for next year's taxes, if your net tax owing is more than $3,000 (for Quebec $1,800) for 2021 and in either 2020 or 2019. Instalments due by:
Tax instalment payments are due by the following dates (except farmers and fishers who have one due date on December 31):
Instalment interest and possible penalty charges will be applied if you do not pay your required tax instalments or paid insufficient amounts.
You will be charged instalment interest if all the following apply:
You are required to pay by instalments in 2021
You receive an instalment reminder in 2021 that shows an amount to pay
You did not make any of your instalment payments, paid late, or paid less than what you had to pay
We charge instalment interest on all late or insufficient instalment payments. Instalment interest is compounded daily at the prescribed interest rate, which can change every 3 months.
How we calculate your interest
$A Interest on each instalment payment you should have paid
We calculate interest from the day it was due to your balance due date, based on the payment option that results in the least amount of interest.
-$B Interest on each instalment you paid
We calculate the interest for the year starting from the date the payment was made or January 1 (whichever date is later) up to the balance due date.
$C The interest your owe is the difference between A and B (if more than $25)
You may have to pay a penalty if your instalment payments are late or less than the required amount. We apply this penalty only if your instalment interest charges for 2021 are more than $1,000.
To calculate the penalty, we determine which of the following amounts is higher.
If a flat rate of $1000 is higher - you are charged $1000
If 25% of the interest is higher - you are charged- 25% of the instalment interest you would have paid if you had not made instalments payments for 2021
CRA will subtract the higher amount from your actual instalment interest charges for 2021. Then divide the difference by 2 and the result is your penalty.
You can reduce or eliminate interest and penalties if you do one of the following:
overpay your next instalment payment
pay your next instalment early
This will allow you to earn instalment credit interest. This credit interest is not refundable and can only be used against any interest charges on late payments for the same tax year