{"id":6216,"date":"2025-10-16T18:59:25","date_gmt":"2025-10-16T18:59:25","guid":{"rendered":"https:\/\/cmy.800.mytemp.website\/?p=6216"},"modified":"2025-10-16T18:59:25","modified_gmt":"2025-10-16T18:59:25","slug":"how-to-respond-to-a-tax-instalment-notice-february-2023","status":"publish","type":"post","link":"https:\/\/levypilotte.com\/en\/how-to-respond-to-a-tax-instalment-notice-february-2023\/","title":{"rendered":"How to respond to a tax instalment notice (February 2023)"},"content":{"rendered":"

Sometime during the month of February, millions of Canadians will receive mail from the Canada Revenue Agency. That mail, a \u201cTax Instalment Reminder\u201d, will set out the amount of instalment payments of income tax to be paid by the recipient taxpayer by March 15 and June 15 of this year.<\/p>\n

Receiving an \u201cInstalment Reminder\u201d from the CRA won\u2019t be a surprise for many recipients who have paid tax by instalments during previous tax years. For others, however, the need to make tax payments by instalment is a new and unfamiliar concept. That\u2019s because for most Canadians \u2013 certainly most Canadians who earn their income through employment \u2013 the payment of income tax throughout the year is an automatic and largely invisible process, requiring no particular action on the part of the employee\/taxpayer. Federal and provincial income taxes, along with Canada Pension Plan (CPP) contributions and Employment Insurance (EI) premiums, are deducted from each employee\u2019s income and the amount deposited to an employee\u2019s bank account is the net amount remaining after such taxes, contributions, and premiums are deducted and remitted on the employee\u2019s behalf to the Canada Revenue Agency. While no one likes having to pay taxes, having those taxes paid \u201coff the top\u201d in such an automatic way is, relatively speaking, painless. Such is not, however, the case for the sizeable minority of Canadians who pay their income taxes by way of tax instalments<\/p>\n

The CRA\u2019s decision to send an Instalment Reminder to certain taxpayers isn\u2019t an arbitrary one. Rather, an Instalment Reminder is generated when sufficient income tax has not been deducted from payments made to that taxpayer throughout the year. Put more technically, an Instalment Reminder will be issued by the CRA where the amount of tax which was or will be owed when filing the annual tax return is more than $3,000 in the current (2023) tax year and either of the two previous (2021 or 2022) tax years. Essentially, the requirement to pay by instalments will be triggered where the amount of tax withheld from the taxpayer\u2019s income throughout the year is at least $3,000 less than their total tax owed for 2023 and either 2021 or 2022. For residents of Qu\u00e9bec, that threshold amount is $1,800.<\/p>\n

Such obligation arises on a regular basis for those who are self-employed, of course, and generally for those whose income is largely derived from investments. The group of recipients of a Tax Instalment Reminder often also includes retired Canadians, especially the newly retired, for two reasons. First, while most employees have income from only a single source \u2013 their paycheque \u2013 retirees often have multiple sources of income, including CPP and Old Age Security (OAS) payments, private retirement savings, and, sometimes, employer-provided pensions. And while income tax is deducted automatically from one\u2019s paycheque, that\u2019s not the case for most sources of retirement income. Relatively few new retirees realize that it\u2019s necessary to make arrangements to have tax deducted \u201cat source\u201d from either their government source income (like CPP or OAS payments) or private retirement income like pensions or registered retirement income fund withdrawals, and to make sure that the total amount of those deductions is sufficient to pay the total tax bill for the year. It is that group of individuals who may be surprised and puzzled by the arrival of an unfamiliar \u201cInstalment Reminder\u201d from the CRA. However, no matter what kind of income a taxpayer has received, or why sufficient tax has not been deducted at source, the options open to a taxpayer who receives such an Instalment Reminder are the same.<\/p>\n

First, the taxpayer can pay the amounts specified on the Instalment Reminder by the March and June payment due dates. Choosing this option will mean that the taxpayer will not face any interest or penalty charges, even if the amount paid by instalments throughout the year turns out to be less than the taxes actually payable for 2023. If the total of instalment payments made during 2023 turn out to be more than the taxpayer\u2019s total tax liability for the year, he or she will of course receive a refund when the annual tax return is filed in the spring of 2024.<\/p>\n

Second, the taxpayer can make instalment payments based on the amount of tax which was payable for the 2022 tax year (which will, of course, be known once the return for 2022 is completed). Where a taxpayer\u2019s income has not changed significantly between 2022 and 2023 and his or her available deductions and credits remain the same, the likelihood is that total tax liability for 2023 will be slightly less than it was in 2022, as the result of the indexation of both income tax brackets and tax credit amounts.<\/p>\n

Third, the taxpayer can estimate the amount of tax which he or she will owe for 2023 and can pay instalments based on that estimate. Where a taxpayer\u2019s income will decrease significantly from 2022 to 2023, such that his or her tax bill will also be substantially reduced, this option can make the most sense.<\/p>\n

A taxpayer who elects to follow the second or third options outlined above will not face any interest or penalty charges if there is no additional tax payable when the return for the 2023 tax year is filed in the spring of 2024. However, should instalments paid have been late or insufficient, the CRA will impose interest charges, at rates which are higher than current commercial rates. (The rate charged for the first quarter of 2023 \u2013 until March 31, 2023 \u2013 is 8%.) As well, where interest charges are levied, such interest is compounded daily, meaning that on each successive day, interest is levied on the previous day\u2019s interest. It\u2019s also possible for the CRA to levy penalties for overdue or insufficient instalments, but that is done only where the amount of instalment interest charged for the year is more than $1,000.<\/p>\n

Most Canadian taxpayers are understandably disinclined to pay their taxes any sooner than absolutely necessary. However, ignoring an Instalment Reminder is never in the taxpayer\u2019s best interests. Those who don\u2019t wish to involve themselves in the intricacies of tax calculations can simply pay the amounts specified in the Reminder. The more technical-minded (or those who want to ensure that they are paying no more than absolutely required, and are willing to take the risk of having to pay interest on any shortfall) can avail themselves of the second or third options outlined above.<\/p>\n

Detailed information on the instalment payment system for 2023, and the calculation and payment options available to taxpayers, can be found on the Canada Revenue Agency website at https:\/\/www.canada.ca\/en\/revenue-agency\/services\/payments-cra\/individual-payments\/income-tax-instalments.html<\/a>.<\/p>\n<\/div>

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The information presented is only of a general nature, may omit many details and special rules, is current only as of its published date, and accordingly cannot be regarded as legal or tax advice. Please contact our office for more information on this subject and how it pertains to your specific tax or financial situation.<\/span><\/p>\n<\/div><\/div><\/div><\/div><\/div>","protected":false},"excerpt":{"rendered":"","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[1],"tags":[],"class_list":["post-6216","post","type-post","status-publish","format-standard","hentry","category-uncategorized"],"_links":{"self":[{"href":"https:\/\/levypilotte.com\/en\/wp-json\/wp\/v2\/posts\/6216","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/levypilotte.com\/en\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/levypilotte.com\/en\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/levypilotte.com\/en\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/levypilotte.com\/en\/wp-json\/wp\/v2\/comments?post=6216"}],"version-history":[{"count":1,"href":"https:\/\/levypilotte.com\/en\/wp-json\/wp\/v2\/posts\/6216\/revisions"}],"predecessor-version":[{"id":6217,"href":"https:\/\/levypilotte.com\/en\/wp-json\/wp\/v2\/posts\/6216\/revisions\/6217"}],"wp:attachment":[{"href":"https:\/\/levypilotte.com\/en\/wp-json\/wp\/v2\/media?parent=6216"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/levypilotte.com\/en\/wp-json\/wp\/v2\/categories?post=6216"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/levypilotte.com\/en\/wp-json\/wp\/v2\/tags?post=6216"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}