Whether you owe quarterly tax installments depends on how much net tax you paid in previous years. If your net tax (after credits) was more than $3,000 in either of the two prior tax years, the CRA will require you to make installments. The amount is based on your previous year's tax liability or your current year's estimated income, whichever is lower. Many side hustlers don't realize this requirement applies to them until they receive an installment notice in the mail. The CRA uses a specific threshold to determine if you're required to pay installments. This CRA rule may apply to you if any of these situations match your situation: - Your net tax exceeded $3,000 in the current year or either of the two preceding years - You're receiving a Notice of Assessment with a balance owing - The CRA has sent you a quarterly installment notice - You're earning significant self-employment income that puts you in a higher tax bracket If you're unsure, check your most recent Notice of Assessment. The CRA will tell you directly if installments are required. The CRA gives you three ways to calculate your installment amount.
If your net tax (tax after credits) was more than $3,000 in the current year or either of the two prior years, this CRA rule may require you to make quarterly installments. Net tax is the total tax you owe after claiming all credits and deductions.
In your first year, you likely won't owe installments since you have no prior year tax history. However, once your side hustle generates enough income that your net tax exceeds $3,000, the CRA will expect installments in future years.
Any overpayment will be refunded to you when you file your tax return. The CRA reconciles your installment payments against your actual tax liability for the year.
You can pay installments online through CRA My Account, by phone, by mail, or through your bank. Online and phone payments are processed faster and reduce the risk of late payment penalties.
No, quarterly installments are tax payments, not business expenses. They don't reduce your taxable income. However, any interest or penalties charged by the CRA on late installments are not deductible either.