The tax instalments can be calculated in 3 ways. Please see below for the different methods as indicated by the CRA.
- No Calculation Option: Instalments payments are based on taxes owing in last year and 2nd last year. This alternative is best if taxes owing are fairly consistent from year to year.
- Prior-year option: Tax instalments are based on taxes owing in last year. This alternative is best if taxes owing in the current year is similar to lat year but drastically different from the 2nd last year.
- Current-year Option: Instalments are based on an estimate of current year’s taxes owing.
This alternative is best if taxes owing in the current year will be drastically different from prior years. In that case, payments can be based on an estimate of this year’s taxes owing. However, if the estimated instalment payment made is lower than the actual taxes owing for the current year, then instalment interest and penalty may be charged.
