How to Pay Self-Employed Tax Instalments to the CRA in Canada
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- Опубликовано: 30 июл 2024
- In this video, I show you how to pay your self-employed tax instalments to the CRA. I have to pay quarterly taxes for the current tax year, instead of paying one lump sum at the beginning of the next tax year. In other words, because of how much my business earns, I have to pre-pay my taxes in instalments throughout the year.
Think of it like if you were to work for a company, and they take some money off your paycheque for taxes. What they're actually doing is taking that money and pre-paying it to the CRA on your behalf so hopefully you won't have a tax bill when you file your tax return because you've already paid what you owed.
This is the same concept. You're prepaying your taxes but as a self-employed person. And hopefully, you'll pay the correct amount so you won't owe any more tax, or maybe you'll owe a little bit more tax depending on your business earnings for the year, or in the case that you've paid too much, you'll get a tax refund.
Now what's important to remember is that income tax and sales tax are completely separate. You file and pay your GST/HST using the CRA My Business account. And if you need to file and pay PST for one of the provinces that may require you to (BC, Saskatchewan, Manitoba, Quebec), then you have to do that through their provincials sites. I have videos on how to do all of this in this playlist: • Self-Employment & Smal...
For income tax, you would pay your instalment payments through your CRA My Account (your personal CRA account). That's because when you're a sole proprietor, your business and you as a personal taxpayer are the same entity.
If you have any questions about this, drop them in the comments!
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RESOURCES
➡️ Required Tax Instalments for Individuals www.canada.ca/en/revenue-agen...
➡️ Who Has to Pay www.canada.ca/en/revenue-agen...
➡️ Interest & Penalty Charges www.canada.ca/en/revenue-agen...
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I'm Jessica Moorhouse, a money expert, Accredited Financial Counsellor Canada®, speaker, blogger, RUclipsr, and host of the More Money Podcast. I'm based out of Toronto, ON, Canada and turned my personal finance blogging side hustle into my full-time business so I could spend all my time teaching others how they can take control of their lives by taking control of their money. To learn more, check out my website jessicamoorhouse.com
#selfemployed #taxes #cra
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The content I produce is for education and entertainment purposes only. Nothing on this RUclips channel, my website or affiliated channels should be considered financial, investment or legal advice, or an endorsement for any type of service, product, or brand. Some links in this description may be affiliate links in which I may earn a commission at no extra cost to you. Please read my disclaimer to learn more: jessicamoorhouse.com/disclaimer/
I'm gonna continue to make videos on self-employment in Canada, so make sure to drop your questions in the comments! 👇
How often should a LLC pay taxes in Canada. Is it monthly or annually
@@christisgodd We don't have LLC's in Canada
@@jessicamoorhouse I mean limited liabity companies
@@christisgodd You mean corporation. In Canada the business structures available are sole proprietor, partnership, and corporation. For info about paying your corporate tax instalments: www.canada.ca/en/revenue-agency/services/tax/businesses/topics/corporations/corporation-payments/paying-instalments.html
@@jessicamoorhouse thank you
Thank you for doing more self-employed videos! Thank you for guiding this self-employed subscriber💗
Yay! I'm so glad! I've got more to come like how to pay yourself and stuff like that. Any other requests for future videos?
It makes me so excited to find information specific to canadians👌🏼
Yay, I'm so glad to hear that!
Good timing!
Glad to hear!
THANK YOU! 🙏
You're welcome!
Hi Jessica, actually I owe less than $3000 and it’s because i do two jobs. Can I do it by instalments?
Thanks for the video! It really cleared up some confusion I had while reading the CRA website. I also missed my first installment for the first quarter and just paid both first and second quarter before June 15 through my bank account. I only paid back the set amount stated by the CRA. Should I have added more to offset my first missed payment and how much would you suggest I add?
You might be fine so I wouldn't worry about it. If you're charged any interest for being late you'll find it noted in your CRA account when you pay your 3rd quarter instalment.
My tax instalments more than DOUBLED for the September and December due dates! I just got the reminder email a couple days ago. This cripples my financial planning for the rest of the year. How was I suppose to know my instalments would more than double! I fortunately had a great 2020 financially, but I did not see this big an increase coming. Also, can't the CRA send out 4 reminders for each quarterly instalment due date? I missed my June 15 due date by a handful of days because I simply forgot. It's like the CRA only sends out 2 emails instead of 4 because they want you to forget to collect any interest and the penalty. The dates will be in my calendar moving forward until I retire.
Sorry to hear that!
does cra atomically calculate the amount that you owe ?
Interesting ☺️
Thanks!
Thanks for the video! But what if my net tax owing is less than $3000? Will there be an option just to make a one-time payment?
Also I thought it works like this - you file your 2020 tax return (stating your business income in T2125) in April, 2021, they calculate how much you owe them, and then you basically pay for 2020 income in 2021 (4 instalment payments in your case). But I see that you have to make your first instalment payment by March 15, before you even file your tax return. Could you describe how it really works?
Wondering this too 🤔
I think it's like that if your income tax is under a certain number. Once your self employee tax reach a certain number for two years, its automatically a 4 installment plan.
I am struggling with how to enter this in the books properly for a sole proprietorship. What are the proper accounts to use to show the money going out of the business account the proper way?
That's where bookkeeping comes in, so having a spreadsheet or software to keep track of income coming in and expenses going out. And ideally you'd have bank accounts for business separate to your personal bank accounts so it's easier to keep track of everything. A great book recommendation is Profit First that goes through this.
Hi Jes thank you for the videos, Just got a mail from CRA to pay the ongoing 2022 installment for the first time , Unfortunately my net owing is far more less that 3 grand cos I have been working for someone else as an employee . So should I disregard it or I have to contact CRA
Yes, I'd suggest getting in touch with the CRA.
Very useful! Thanks a lot. If we have a job for which we use turbo tax & we want to also sell a product online, can we file our sales taxes with turbo tax and send it all together at once?
Nope. Turbotax is just to file and pay income tax. However you have to pay your tax instalments through your CRA account throughout the year (because you're prepaying your taxes). Sales tax is completely separate from income tax. Check out my other videos on sales tax to better understand.
@@jessicamoorhouse Thanks a lot🙏
Do you have any video on how to pay salary to own self from self owned corporation and ensure the payroll tax deductions and payments to CRA.
I work as a contractor for US based company and self employed in my numbered corporation in Canada.
Talk to your accountant about how best to set this up. It also depends on what bank you use, but typically they have tools that allow you to do this.
I'm curious as to how you figure out the number/amount you owe quarterly? Thanks for these videos, they're so helpful!
Your payment schedule and amount you owe should be noted in your CRA Account
@@jessicamoorhouse so the CRA will automatically calculate it for you & tell you how much you owe quarterly?
is there a tax deducted at source on slef employed ppaymnets?Waht is W9 usa euivalwnt in Canada?
You can set something up like that if you're incorporated through your own payroll system but not as a self-employed individual.
so when we pay these installments and then next year when we file out taxes for the whole year how is it gonna work? do they return the extra money they took? also how do they determine the money they ask for in the installment just based on previous year?
Correct, just like if you were an employee at a company and you pre-pay your income taxes throughout the year (via the deductions off your pay), if you overpay, you'll get a tax refund. And yes, your current corporate tax instalments are calculated based on what you owed the previous year. So if you have to make quarterly instalments and last year you owed $4,000 in corporate tax, you'd pay $1,000 in quarterly instalments.
I didn’t have to pay instalments in my CRA account (at least I haven’t got any reminders in mail or cra account) but when filing GST/HST I was charged interest for missing my instalments… that I wasn’t aware about. I never got any notifications from the CRA my business account or anything about installments what-so-ever so kinda upset. Do you have a similar video on how to make GST/HST installments?
Can I ask how much % they charged in interest
Like this one? ruclips.net/video/pzJx2VMhY3k/видео.html It shows you how to file and pay GST/HST and you'd just do it as per the quarterly instalment schedule (can be found here: www.canada.ca/en/revenue-agency/services/tax/businesses/topics/gst-hst-businesses/complete-file-when.html).
You can find the penalties here: www.canada.ca/en/revenue-agency/services/tax/businesses/topics/gst-hst-businesses/complete-file-penalties-interest.html
I have accrued interest even though none of my installment dates passed. This has to be an error right?
I'd suggest contacting the CRA to see what happened.
The installment calculated and shown in cra my account includes cpp as well?
Yes, CPP is not separate, it's integrated into your total taxes owed.
Thanks for the helpful video! do you happen to know what happens at the end of the year if your amount owing is less than what you've paid throughout the year in installments?
If you paid more tax than you owe when you file your taxes, you get a tax refund.
Hi Jessica! I set up a sole proprietor this year, and am so happy to have found your videos. I'm wondering, as a first-year earner, I haven't received any instalment notices and the CRA says I owe $0 even though I registered for quarterly instalments. Should I just pay what I estimate the taxes to be? Thanks so much!
I'd suggest contacting the CRA to confirm if you are set up for quarterly instalments or whether they only require you to do annually for the first year.
thanks so much! @@jessicamoorhouse
Thanks for this! I will have to pay installment for the first time this year. Do you know if it starts with the June payment or the September one? (I haven’t received a reminder yet)
I'd suggest logging into your CRA My Account and see if there's a message in there with more info. For instance did you get a reminder in February about doing a March or June payment?
@@jessicamoorhouse nope! No message, no reminder so far!
@@johannahauterville Does it give you the option (like I show in my video) to pay in instalments?
@@jessicamoorhouse it’s asking me if I want to. I just filed my 2020 taxes and my owing balance is above the threshold for the first time now. But I guess they wouldn’t have known that in February
@@johannahauterville Hmm ya since you just filed your taxes it may not have recognized before the February reminder that you meet the requirements for instalment payments. I'd say contact the CRA and see what they say.
Thayunks so muchhh
You're welcome!
Do you have video like this for busineses?
You mean for corporate taxes? No I don't.
What would be the taxation for a self-employed Canadian who is a transcriptionist from time to time for an American company and gets paid through PayPal.
Same as any other sole proprietor. You would claim that income on your income tax return and pay your marginal tax rate. Doesn't matter where the money is coming from or how it gets to you, it's all the same.
@@jessicamoorhouseIs there a special form you need to fill for receiving payments from the USA
@@c.thibodeau2731 You can find detailed info here www.knitpeople.com/blog/tax-tips-for-canadians-who-work-for-us-companies
Thank you for your videos! ,
Let's say I owe 5k of taxes, can't I just pay the full amount at once instead of instalments?
Here's a great way to put it: "Once you file your income tax returns in the first year of self-employment or sole proprietorship, the CRA assesses your returns and updates its records. Based on your previous year’s tax bill, it will send you instalment reminders twice a year, mentioning the minimum amount payable throughout the year.
If your income is similar to last year, make sure you pay the minimum amount the CRA requested. If your income is higher, you can voluntarily pay a higher instalment to avoid penalties. But if your income is lower than last year, you can ignore the reminders and only pay an estimated amount. If the tax liability for the current year is below $3,000, you can ignore the reminders and need not pay any instalment. The CRA won’t penalize you." source mccayduff.com/a-complete-guide-on-income-tax-instalments-for-self-employed-individuals/#:~:text=If%20your%20income%20is%20higher,need%20not%20pay%20any%20instalment.
@@jessicamoorhouse
Thanks a lot for your answer!!
looking forward for more videos! :D
How does CRA determine the instalment amounts? If it's based on last year's return, what if I'm making less money this year and don't have the extra cash to pay instalments that are larger than what I'll really be owing?
Great question, as stated on this blog post "If your income is similar to last year, make sure you pay the minimum amount the CRA requested. If your income is higher, you can voluntarily pay a higher instalment to avoid penalties. But if your income is lower than last year, you can ignore the reminders and only pay an estimated amount. If the tax liability for the current year is below $3,000, you can ignore the reminders and need not pay any instalment. The CRA won’t penalize you." mccayduff.com/a-complete-guide-on-income-tax-instalments-for-self-employed-individuals/
@@jessicamoorhouse Thanks for the explanation and the link! Taking my business to a higher level is challenging.
@@jessicamoorhouse How about CPP? I don't see that we can pay that in instalments. I don't want to have to fork out 11.9% all of a sudden when doing my taxes. But I see nothing about paying CPP in advance.
CPP + taxes are 42% of our net income. That's huge. We work our butts off to keep barely a bit more than half-after expenses, at that.
YO do we need to sign up for the cra accunt to pay
I would suggest setting up a CRA account if you don't already have one.
I am so CONFUSED on this. I was laid off work since March 2020. I have been on E.I ever since and will remain until September 2021. I tend to always have $100k in the bank as a safety zone. I have been selling stocks for quite some time and am used to paying Capital Gains Taxes, but what the heck happens with making profits on stocks while still on E.I. If I can make $1000 a month on stocks and get cancelled from E.I, I would rather stay on E.I with $2000 a month for now. I phoned 5 accounting firms in Toronto and the E.I phone line is not worth the wait since they need to transfer you always.
Unless you're a day trader in which your gains would be considered business income, your investment income should not affect your EI. EI is only affected by earned income (i.e. employment income). More info here: www.canada.ca/en/services/benefits/ei/earnings-chart.html
@@jessicamoorhouse Thank you Jessica! When I fill out my report after 2 weeks and they ask if any other monies were earned, should I say yes or no if I am not a day trader?
@@tylergerrard4939 Refer to that link for info on earned income that you'd need to report for EI.
Do you have to do it online?
Nope, you can also pay in person or by mail, but online is certainly the most convenient. www.canada.ca/en/revenue-agency/services/payments-cra/individual-payments/income-tax-instalments/how-pay.html
Why can't you just pay a lump sum ....
You can for your first year, but as soon as the CRA requires you to pay in instalments you need to comply otherwise you'll be charged a penalty www.canada.ca/en/revenue-agency/services/payments-cra/individual-payments/income-tax-instalments/interest-penalty-charges.html
I didn't know about the installments as this is my first year as self employed. If I pay a lump sum before Dec 31 what will happen? And what happens if I overpay or underpay?
@@jessicamoorhouse that’s so dumb. If you could pay all in one lump sum, you should be penalized for that.
@@jessicamoorhouse What happens if I made less money in 2021 than I did in 2020? Based on the estimates, then I will have overpaid in my quarterly instalments in 2021 right? How will I get the money back once I'm doing my 2021 tax calculations now in Q1 2022?
@@motivationalinsights1860 If you paid tax instalments but you discover you overpaid after you file your taxes, you get a tax refund from the government.