Paying Your Income Tax by Instalments

P110(E) Rev. 06

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Table of contents

• What are instalments?
• Why do you have to pay tax by instalments?
• Who has to pay by instalments?
• When are your payments due?
• What is an instalment reminder?
• Calculating your payments
  • No-calculation option
  • Prior-year option
  • Current-year option
  • Did you only get an instalment reminder for
    September and December 2007?
  • Calculation chart for instalment payments
• Reducing your instalments
• Making your instalment payments
  • How and where do you make your payments?
  • After you have made a payment
• Filing your return
• Interest and penalty charges
  • Instalment interest
  • Instalment penalty
• Farming and fishing
• Do you need more information?
• Your opinion counts

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What are instalments?

Instalments are periodic payments of income tax that individuals have to pay the Canada Revenue Agency (CRA) to cover tax they would otherwise have to pay on April 30 of the following year.

Why do you have to pay tax by instalments?

You have to pay tax by instalments for the same reason that an employee has to have tax deducted from his or her pay. If you receive income that has no tax withheld or does not have enough tax withheld for more than one year, you may have to pay tax by instalments.

This can happen if you receive rental, investment, or self-employment income, certain pension payments, or income from more than one job.

Who has to pay by instalments?

You have to pay your income tax by instalments for 2007 if your net tax owing is more than $2,000:

• in 2007; and
• in either 2006 or 2005.

Quebec resident - If you live in Quebec on December 31 of a year, use a net tax owing limit of $1,200 instead of $2,000.

Farmers/Fishers - Different rules apply if your main source of income in 2007 is self-employment income from farming or fishing. For details, see Farming and fishing.

Net tax owing - In general, this is the amount you owe on your tax return. The items used to calculate net tax owing are listed in the chart.

When are your payments due?

Your instalment payments for 2007 are due March 15, June 15, September 15, and December 15, 2007.

When a due date falls on a Saturday, a Sunday, or a holiday recognized by the CRA, we consider your payment to be paid on time if we receive it or if it is postmarked on the next business day. For a list of holidays, visit our Public holidays page, or call us.

Note
Payments you make in person at your financial institution, or electronically are considered received by the CRA on the date that you make them.

Deceased person - If an individual who has to pay tax by instalments dies during the year, no instalment payments due on or after the date of death have to be paid.

What is an instalment reminder?

Instalment reminders are issued to help you identify if you have to pay income tax by instalment. The reminder will suggest an amount to pay and let you know of the various payment options. See the section below called "Calculating your payments" for details on these payment options.

In February and August, we send instalment reminders to individuals who may have to pay tax by instalments. The February reminder is for the March and June payments, and the August reminder is for the September and December payments. You can see your instalment reminders on our online service called My Account.

Note
If the only reminder we send you in 2007 is for the September and December due dates, see Did you only get an instalment reminder for September and December 2007?.

Even if we send you an instalment reminder in 2007, you do not have to make instalment payments for 2007 if your net tax owing for 2007 will be $2,000 or less ($1,200 or less for residents of Quebec).

Calculating your payments

You have three instalment payment options:

• no-calculation option;
• prior-year option; or
• current-year option.

If you choose the best instalment payment option for your situation, you will not overpay your tax during the year or have a large amount of tax to pay when you file your return. You do not have to tell us which option you choose. Instalment reminders that we send to you are always based on the no-calculation option.

Note
If you have to pay by instalments and you have to pay Canada Pension Plan (CPP) contributions on self-employment and other earnings (see line 421 in the General Income Tax and Benefit Guide), your instalment payments are based on your net tax owing and your CPP contributions payable.

No-calculation option

This option is best for you if your income, deductions, and credits stay about the same from year to year.

We will provide the no-calculation option amounts on the instalment reminders that we will send you in February and August 2007. If you choose this option, just pay the amounts shown on the reminders by each due date.

We calculate the amount of your instalments as follows:

• We base your instalments for March 15 and June 15, 2007, on tax information from your assessed return for 2005. Each of these two instalments is equal to one-quarter of your 2005 net tax owing and any CPP contributions payable.
  
• For your September 15 and December 15, 2007, instalments, we subtract the total amount of your March and June 2007 instalment reminders from your 2006 net tax owing and any CPP contributions payable. We then divide the remaining amount equally between your September 15 and December 15, 2007, instalments.

If you use the no-calculation option and make the payments shown on the reminders by their 2007 due dates, we will not charge instalment interest or a penalty, even if the total of the payments is less than the total amount of tax you owe for 2007.

Prior-year option

This option is best for you if your 2007 income, deductions, and credits will be similar to your 2006 amount but significantly different from those in 2005.

If you choose this option, you have to calculate your instalment payments based on your prior-year (2006) net tax owing and any CPP contributions payable. You can use the chart to calculate your total instalment amount due using 2006 amounts. Then, on each instalment due date, you pay one-quarter of the calculated amount.

If you use the prior-year option and make the payments in full by their 2007 due dates, we will not charge instalment interest or a penalty unless the total instalment amount due you have calculated is too low. For details, read Interest and penalty charges.

Current-year option

This option is best for you if your 2007 income, deductions, and credits will be significantly different from those in 2005 and 2006.

If you choose this option, you have to calculate your instalment payments based on your estimated current-year (2007) net tax owing and any CPP contributions payable. You can use the chart to calculate your 2007 total instalment amount due. Then, on each instalment due date, you pay one-quarter of the calculated amount.

If you use the current-year option and make the payments in full by their 2007 due dates, we will not charge instalment interest or a penalty unless the amounts you estimated when calculating your total instalment amount due were too low. For details, see Interest and penalty charges.

Did you only get an instalment reminder for September and December 2007?

If you use the no-calculation option, pay the amount shown in box 2 of your reminder for September 15 and December 15.

If you use the prior-year option, calculate your 2006 net tax owing and add any CPP contributions payable. Pay three-quarters of the total on September 15 and one-quarter on December 15.

If you use the current-year option, estimate your current-year (2007) net tax owing and add any CPP contributions payable. Pay three-quarters of the total on September 15 and one-quarter on December 15.

Note
Whichever option you choose, if you have already made a payment for the March 15 and June 15 due dates, you can subtract those amounts from your September 15 payment.

Calculation chart for instalment payments

The calculation chart below lists the items used to calculate net tax owing (line 13). It is also used to determine your total instalment amount due (line 15) when you choose either the prior-year or current-year payment option.

To complete the chart, see your Notice of Assessment, Notice of Reassessment, or a return and your prior-year or estimated current-year income information, depending on the option you decide to use. Then, enter the amounts that correspond to the lines in the chart.

Note
When using the current-year option, do not send us any return you completed to make your estimates.

Reducing your instalments

You can reduce the amount of your instalment payments, or you may not have to make instalment payments at all, if you reduce your net tax owing. You can do this by having tax withheld, or by increasing the amount of tax withheld, from certain types of income.

To have tax withheld from Old Age Security (OAS) or Canada Pension Plan (CPP) benefits, send a completed Form ISP3520, Request for Income Tax Deductions, to the Income Security Programs office of Human Resources and Social Development Canada (HRSDC). You can get the form on the HRSDC. You can also make this request by calling 1-800-277-9914.

To do this for employment income or for pension benefits from an employer-sponsored pension plan, give a completed Form TD1, 2007 Personal Tax Credits Return, to your employer or pension plan administrator.

Income tax cannot be withheld from certain types of income, such as self-employment, investment, and rental income, and capital gains.

Making your instalment payments

How and where do you make your payments?

Each instalment reminder package we send includes two copies of Form INNS3, Instalment Remittance Form (call 1-800-959-8281 if you need more copies). You have several options to make your payments.

Electronically - You cannot make electronic payments to us directly. You may be able to pay electronically through your financial institution's Internet or telephone banking services. Visit our Electronic payments page or contact your financial institution to see which services they offer.

At your financial institution - You can make your payment free of charge at your branch of a Canadian chartered bank, caisse populaire, or credit union. However, you must have Form INNS3 from the CRA in order for the institution to accept the payment. Give Form INNS3 to the teller, who will detach and keep the payment section of the form, and who will stamp and give the rest to you as a receipt.

By pre-authorized debits - You can have your instalment payments debited from your bank account. To do this, complete Form T1162A-1, Pre-Authorized Payment Plan (Personal Quarterly Instalment Payments), to:

Canada Revenue Agency
P.O. Box 9659, Station T
Ottawa ON K1G 6L7

By mail - You can send a cheque (post-dated cheques accepted) or money order payable to the Receiver General, and a completed Form INNS3, to:

Canada Revenue Agency
875 Heron Road
Ottawa ON K1A 1B1

Please write your social insurance number (SIN) on the back of your cheque or money order to help us process your payment correctly. Your SIN is the authorized identification number for income tax purposes under section 237 of the Income Tax Act and is used for certain federal programs.

After you have made a payment

We will not immediately issue a receipt for a payment you make, so you should keep your cancelled cheque or bank receipt as proof of your instalment payment. A record of your payments will be shown on the back of Form INNS1, Instalment Reminder, or on Form INNS2, Instalment Payment Summary. We issue these in February and August. You can also see the instalment payments you have made to your account with our online service called My Account.

If you make a payment with a cheque that your financial institution does not honour, including a cheque on which you put a stop-payment, we will charge you a fee.

Did you move from Quebec in 2007? If you made instalment payments to Revenu Québec for 2007, you have to notify them of your change of address and ask for a refund of those amounts. Then, send that refund to us with a letter from Revenu Québec that provides the dates those payments were made. We will use this amount to cover the provincial tax in your new province of residence.

Filing your return

In February 2008, you will be able to see the total of your instalment payments for 2007 on the back of Form INNS1, Instalment Reminder, or on Form INNS2, Instalment Payment Summary.

Claim this amount as a credit on line 476 when you complete your 2007 tax return. If you made an instalment payment for 2007 that is not shown on Form INNS1 or Form INNS2, include that amount on line 476.

Any balance of tax you still owe is due by April 30, 2008. If the instalments are more than the total tax you owe, we will send you a refund when we assess your 2007 return.

If you are expecting a refund, you can choose to have us transfer the full amount of your refund to your instalment account. To do this, attach a note to your return asking for the transfer. We will consider such a payment to have been received on the date that we assess your return.

Interest and penalty charges

Any instalment interest and penalty charges that apply will show on your 2007 Notice of Assessment or Notice of Reassessment.

Instalment interest

We charge instalment interest if all of the following conditions apply:

• we send you an instalment reminder in 2007 that shows an amount to pay;
• you are required to make instalment payments in 2007; and
• you choose not to make instalment payments, or you make payments that are late or less than the required amount.

We calculate the interest on each instalment that you should have paid using the payment option that calculates the least amount of interest. Then we calculate the interest on each instalment you did pay. We charge the difference between these two amounts if the difference is more than $25.

Instalment interest is compounded daily at the prescribed interest rate. This rate can change every three months. To get the current interest rate, visit our Prescribed interest rates page or call 1-800-959-8281.

If you realize during 2007 that you paid less than your required instalment payment, or that you did not pay it on time, you can reduce or eliminate an instalment interest charge by overpaying your next 2007 instalment payment or by paying it early.

Instalment penalty

You may also 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 2007 are more than $1,000.

To calculate the penalty, we determine which of the following amounts is higher:

• $1,000; or
• one-quarter of the instalment interest that you would have had to pay if you had not made instalment payments for 2007.

Then, we subtract the higher amount from your actual instalment interest charges for 2007. Finally, we divide the difference by two and the result is your penalty.

Farming and fishing

You have to make one instalment payment by December 31, 2007, if:

• your main source of income in 2007 is self-employment income from farming or fishing; and
• in each of 2005, 2006, and 2007, your net tax owing is more than $2,000.

Quebec resident - If you live in Quebec on December 31 of a year, use a net tax owing limit of $1,200 instead of $2,000.

At the end of November, we send instalment reminders to farmers and fishers who may have to pay tax by instalments. The no-calculation amount is equal to two-thirds of the total of your prior-year (2006) net tax owing plus any CPP contributions payable.

Even if we send you an instalment reminder in 2007, you do not have to make instalment payments for 2007 if your net tax owing for 2007 will be $2,000 or less ($1,200 or less for residents of Quebec).

If your 2007 income, deductions, and credits will be significantly different from will be more or less than it was in the prior year, it may be better to calculate your instalment payment using the current-year option. If you choose this option, you have to calculate your instalment payments based on your estimated 2007 net tax owing and any CPP contributions payable. Use the chart to calculate your 2007 total instalment amount due and pay two-thirds of the total on December 31, 2007.

Be sure to read Reducing your instalments, Making your instalment payments, Filing your return, and Interest and penalty charges.

Do you need more information?

If, after reading this pamphlet, you need more information, you can visit our Paying by instalments page, or you can call us at 1-800-959-8281. To get personal and general tax information, use our automated service T.I.P.S. at 1-800-267-6999.

You can get forms or publications you need from our Forms and publications page or call 1-800-959-2221.

My Account - My Account is a secure online service that gives you the convenience and flexibility of viewing and managing your personalized information, such as:

• your identification and direct deposit information;
• refund and/or balance owing; and
• instalment account.

My Account also offers you different services such as filing an objection online, and changing your return.

For more information, visit our My Account page.

Teletypewriter (TTY) users - If you have a hearing or speech impairment and use a TTY, an agent at our bilingual enquiry service (1-800-665-0354) can help you during regular and evening hours of service.

Your opinion counts!

We review this pamphlet each year. If you have any comments or suggestions that would help us improve it, we would like to hear from you.

Please send your comments to:

Taxpayer Services Directorate
Canada Revenue Agency
750 Heron Road
Ottawa ON K1A 0L5