Solution to Assignment Problem Two - 1
Need For Instalments
Instalments are required when an individual’s “net tax owing” exceeds $3,000 in the current year and
in either of the two preceding years. In somewhat simplified terms, “net tax owing” is defined as the combined federal and
provincial taxes payable, less amounts withheld under ITA 153. As Ms. Garond’s net tax owing in all three of the years 2005
through 2007 exceeds $3,000, she is clearly required to make instalment payments.
The amount of the instalments could be based on the net tax owing for 2006 or 2007. In addition, the first two
2007 instalments could be based on the net tax owing for 2005, with the final two quarterly instalments based on the 2006 net
tax owing. Given that the lowest net tax owing figure is 2007’s $4,150 ($14,000 - $9,850), use of this figure will give the
lowest instalment payments. The quarterly payments would be $1,037.50 and are due on March 15, June 15, September 15,
and December 15.
Solution to Assignment Problem Two - 2
Although it is not covered in the text, it should be noted that ITA 155 provides special rules for individuals whose chief
source of income is farming or fishing. The requirement here is that two-thirds of the estimated taxes payable for the current
year (or the immediately preceding year) must be paid by December 31 of that year.
An individual will be required to make quarterly instalment payments if the net tax owing is greater than $3,000 in:
the current year; and
either of the two preceding years.
The quarterly payments are due on or before the 15th day of March, June, September, and December and would be based on
the estimated net tax owing for the current year; or
the net tax owing for the immediately preceding year.
An individual can base the March 15 and June 15 instalments on the net tax owing for the second preceding year. For the
September 15 and December 15 instalments, the payments would be calculated using the preceding year’s net tax owing,
reduced by the total amount paid in the March 15 and June 15 instalments.
As an alternative to calculating the instalments, individuals can make use of an administrative procedure provided by the