Many people are used to the tax routine of filing and paying any income tax owed to the Canada Revenue Agency by April 30th for the previous calendar year. However, there are situations where you may need to make instalment payments (you can think of this like “prepaying your taxes”).
This can happen if you earn income that has no tax or not enough tax withheld at the source for more than one year. For example, you may have income earned from rental properties, side-hustles, pension payments, investments etc., where not enough income tax has been collected throughout the year. In most provinces except Quebec, if you have a tax amount owing of over $3,000, you may be required to pay instalments moving forward.
Instalments are typically due every quarter; however, you can still claim credits, deductions and other benefits you are entitled to at the regular tax time to reduce your total amount owing. Your annual return will balance out what you have already paid through instalments, and what you ultimately owe, to get to your net refund or additional balance owing.
It’s very important to ensure you know whether you are required to pay instalments as failure to pay means you may have interest and penalty charges added. In addition, corporations have their own requirements regarding tax instalments.