National Post (National Edition)
Here's everything you need to know about paying tax by instalment this year
TAX PAYER CHALLENGED TAX ARREARS CHARGED $599.24
This month, the Canada Revenue Agency sent out instalment reminders to taxpayers who are required to pay quarterly tax instalments, reminding them of the first and second instalment deadlines for 2021. The first instalment is due in a couple of weeks on March 15, 2021, with the second due on June 15, 2021. According to the CRA, approximately 1.8 million individuals are required to pay income tax by instalments annually.
Under the Income Tax Act, quarterly tax instalments are required for this tax year if your “net tax owing” for 2021 will be more than $3,000 ($1,800 for Quebec tax filers) and was also greater than $3,000 ($1,800 for Quebec) in either 2020 or 2019.
The definition of net tax owing is somewhat complex, but essentially refers to your net federal and provincial taxes, less income tax withheld at source, plus any Canada Pension Plan contributions and Employment Insurance premiums on self-employment earnings (if applicable), as well as adjustments for certain other credits and social benefit repayments.
There are three options that may be used to determine how much you need to pay each quarter: the no-calculation option, prior-year option and current-year option. Individuals can choose the option that results in the lowest payments.
Under the no-calculation option, the CRA calculated your March 2021 and June 2021 instalments based on 25 per cent of the net tax owing on your 2019 assessed return. The Sept. 15 and Dec. 15, 2021 instalments will then be calculated based on the net tax owing from your soon-to-be-filed 2020 return (due April 30, or June 15 for self-employed and their spouse or partner), less the March and June instalments already paid.
By contrast, the prior-year option bases the calculation solely on last year's (2020) income. The 2021 instalments are based on your 2020 tax owing and you simply need to pay a quarter of the amount on each instalment date. This option is best if your 2021 income, deductions and credits will be similar to 2020, but significantly different than 2019, perhaps because you sold a vacation property back in 2019 and reported a large capital gain (which wasn't sheltered by the principal residence exemption.)
Finally, under the current-year method, you simply base your 2021 instalments on the amount of estimated tax you think you will owe for this year and you pay one quarter of the estimated amount on each instalment date. This option is useful if your 2021 income will be significantly less than 2020. For example, if you are self-employed and your income has dropped significantly due to COVID, you can make 2021 instalments based on your estimated lower income this year.
Provided you make the required instalments and they are remitted on time, no interest or penalties will be assessed.
Thinking of ignoring the instalment reminder you just received? The government could charge your instalment interest and, in some cases, an instalment penalty. Instalment interest is compounded daily at the prescribed interest rate, which is currently five per cent for overdue taxes. The instalment interest clock starts ticking from the day your instalment was due until the date it is paid (or, if unpaid, until April 30, 2022.) Fortunately, the government chooses the instalment option that results in the least amount of interest.
An instalment penalty may also apply if the instalment interest is more than $1,000. The penalty is calculated by subtracting from the instalment interest the greater of either $1,000 or 25 per cent of the instalment interest calculated if no instalment payments had been made for the year. Half of this difference is the amount of the penalty.
A tax case decided last month demonstrates what can happen if you ignore the instalment reminder from the CRA. The case came before a three-judge panel of the Federal Court of Appeal, which heard the case by online video conference. The taxpayer was appealing a prior judgment of the Tax Court of Canada which had dismissed his appeal concerning $599.24 of arrears interest the taxpayer was charged for the failure to make tax instalment payments for the 2016 tax year.
The taxpayer worked in Egypt for a non-Canadian petroleum company but was still considered a resident of Canada for tax purposes the year 2016. He chose not make any Canadian tax instalment payments for the year.
The taxpayer argued that he should not be required to make Canadian instalment payments because source deductions were taken by his employer on account of his tax liability in Egypt. The taxpayer wanted the court to reimburse him for the arrears interest charged.
The taxpayer attempted to seek relief using an article of the Canada-Egypt tax treaty, which states that “The nationals of a Contracting State shall not be subjected in the other Contracting State to any taxation or any requirement connected
THE TAXPAYER ATTEMPTED TO SEEK RELIEF USING AN ARTICLE OF THE CANADA-EGYPT TAX TREATY.
therewith which is other or more burdensome than the taxation and connected requirements to which nationals of that other State in the same circumstances are or may be subjected.”
The taxpayer interpreted this provision to mean that the CRA was required to take into account source deductions taken with respect to tax in Egypt in calculating the instalment payments that were then required to be paid in Canada.
The appellate court disagreed and found that the treaty provision being invoked did not apply to the taxpayer's case. It ruled that instalments were, indeed required, and, as the lower Tax Court found, any source deductions taken for tax in Egypt do not affect the instalments that were required under the Canadian Income Tax Act. The court therefore upheld the arrears interest charged for failing to make the required tax instalments when due.
Over the past 35 years since FNTI began offering educational programming at its main campus in Tyendinaga Mohawk Territory, more than 4,000 students have graduated.
Their alumni can be found in all sectors of the Canadian economy, including social and health sciences, leadership and governance, restorative justice, business, aviation, media, and academia. Many FNTI graduates are social and economic change makers, some of whom are elected officials.
The Indigenous institute has outgrown its space and the present facility is not equipped to serve the next generations of students and Indigenous postsecondary programming, research and development, innovation and entrepreneurship.
“Our current facility is a series of modular buildings which lack ventilation and can't be retrofitted to meet the health and safety requirements associated with COVID,” said Suzanne Brant, president of FNTI. “This is the perfect opportunity and it's our time for a new campus building.”
As FNTI prepares to launch new standalone bachelor's degree programs this year, it is also gearing up for a fundraising campaign to support a planned 50,000-square-foot, net-zero facility near the historic Tyendinaga Aerodrome.
Drawing on the principles of traditional longhouse construction, the geometry of the atrium creates a solar chimney. This natural flue design, coupled with operable windows, and passive heating and ventilation will result in a healthy ecosystem with a generous supply of light and fresh air.
In order to achieve netzero emissions and a small carbon footprint, the building
will be mass timber construction, powered by solar panels which could potentially provide autonomy from the grid. The building will also integrate other elements of longterm sustainability, adaptability and reciprocity with the natural world.
“Besides being a beautiful space, it's going to be highly flexible and functional,” said board of directors chair Ralph Brant. “The whole building is designed as a teaching tool.”
FNTI is using an integrated project delivery (IPD) approach, which aligns closely with Indigenous values and focuses on shared responsibility. This socially responsible construction model collaboratively harnesses the talents and insights of all participants to optimize project results, reduce waste and maximize efficiency.
“FNTI's climate-conscious infrastructure project will help build community capacity by using Indigenous procurement throughout the supply chain, construction companies, and upskilling skilled trades trainees, facilitating social change,” said Ralph Brant. “IPD is a unique, communityminded and collaborative process.”
FNTI estimates construction costs for the new building at $30.4 million and hopes to cover that cost through agreements for post-secondary infrastructure with the federal and provincial governments. A comprehensive fundraising campaign is being launched to equip the facility's Indigenous food systems lab and incubator and the entire suite of new standalone degree programs with materials, equipment, technology and furnishings.
“We are reaching out to all sectors and across the country, including philanthropists, corporate donors, Indigenous stakeholders, alumni and employees, to join us in building a state-of-the-art learning facility rooted in Indigenous knowledge for the benefit of everyone,” said director of government relations and communication Cathie Stewart Findlay.
Students from more than 110 First Nations across Ontario, and 162 across Canada, choose FNTI for its renowned academic rigour and experiential learning opportunities.
“We are shovel ready,” said Findlay. “We need your support to make this happen.”
For more information and to make a donation, visit