When a P.E.I. woman got a letter asking for taxes on money she hadn’t earned, she thought she was being scammed.
“When I opened it, I thought it was a scam printed on [Canada Revenue Agency] paper, because I know there have been scams, so I didn’t pay too much attention to it,” Mary Mullen, a French Village resident, told CBC.
Mullen is an instructor at a post-secondary institution and has retired from another job.
She showed the letter to her son and daughter and they told her to check with CRA.
Canada’s tax-collecting agency told Mullen the letter was in fact real, and that the government can require people to pay tax instalments in advance of actually earning money if they owed more than $3,000 that year (or $1,800 for Quebec residents).
“I was very shocked. I kept telling them this is income I haven’t totally earned yet,” Mullen said.
While most Canadians file their income tax returns in the spring for the previous year, this year, some 1.8 million people got a “reminder” that they may have to pay a chunk of 2020’s bill this year.
“I’ve always paid my taxes on time, before they were due, and in the full amount,” said Mullen, who retired from one job but still works. “I could maybe understand [it] had I been delinquent in taxes for the last number of years and they wanted some assurance they would get taxes.”
The letter told her to pay two instalments of more than $3,000 each. The first was due Sept. 15 (but was extended to Sept. 30) and the second on Dec. 15. CRA told her there is a penalty for late payment of the advance instalments but that she could appeal if she thought she’d earn less this year and thus accrue a lower tax bill.
Mullen said she can make the payments, but not everyone is as lucky.
“I am certainly concerned about people who may not be in the position I am and maybe haven’t been working this year, especially during COVID. Are they going to have to come up with an amount of money?” she asked.
Why CRA collects in advance
The CRA said there are situations where the instalment reminders may be ignored. If you got the letter but owed less than $3,000 in 2020 ($1,800 in Quebec), “you can disregard this notice.”
Sylvie Branch, a CRA spokesperson, said instalments are required when someone earns income that has no tax withheld, or not enough tax withheld. She said that includes self-employed people, people with more than one job or people with rental and investment income. Pension payments also can be included in some cases.
“To treat individuals fairly, those who do not have enough tax withheld from their income have to pay a reasonable estimate of their tax throughout the year, rather than on April 30 of the next year,” Branch said.
“It is important to note that if a taxpayer’s 2020 net tax owing will be less than $3,000 ($1,800 for residents of Quebec), instalment reminders may be disregarded and instalment interest will not be assessed if quarterly payments are not made,” another CRA spokesperson, Paul N. Murphy, said in a subsequent email.
Dalhousie University professor emeritus Shirley Tillotson, a tax historian, said that advance instalments are a routine occurrence for some Canadians.
“But if you’re someone who finds, as many people do, any communication from the CRA terrifying, this is set up in a way that doesn’t highlight the fact that what they’re offering is an option to pay smaller instalments this year, or maybe none at all if your income has really been hit hard,” she said.
Tillotson, who notes she is not a tax accountant, said while the letter is precise and accurate, if people don’t read it or understand it, “it’s going to be, ‘Oh my God, I owe $3,000,’ or whatever the amount is.”
Most people actually pay instalments
Tillotson said the advance instalment system was created to prevent people from falling behind in their income tax payments. It also helps CRA avoid having to chase down small amounts of owed taxes with “aggressive” collection tactics.
She said most people actually pay their taxes ahead of time. “When we salaried income or wage income earners get that line on our pay stub that says ‘income tax withheld,’ that’s paying by instalments,” she said.
She said the CRA is looking at ways to make 2020 tax payments easier for people but she thinks it could make its message clearer.
“There’s a communication job here for the CRA and for the revenue minister, or some other minister, to additionally communicate what they’ve already said about extending deadlines, about trying to accommodate in the administration of income tax the extreme uncertainties and the real hits that people have taken,” Tillotson said.
She said in the past, the CRA has addressed public concerns in ways that allow everyone to understand what it’s saying.
“They’ve done cartoon strips and ads with strong visual components to them,” she said. “Different people hear things by different means and it may be this is one of those many uncertainties that might require some of the same quality of visual graphic communication as the public health advisors had [for COVID-19].”
What can you do?
Murphy, the CRA spokesperson, said taxpayers expecting their income to be significantly different this year compared to previous years can estimate their instalment payments based on this year’s income.
He said taxpayers who are unable to pay their 2020 advance instalments due to circumstances beyond their control can request relief from penalties or interest after their 2020 return has been assessed.
Mary Mullen said she will pay the instalments ahead of the deadlines this year, but she has asked her employer to start deducting income taxes.
The CRA charges instalment interest on all late or insufficient instalment payments.
Mullen has also completed a simple CRA form that allows taxpayers to request either a fixed amount or a percentage of their Canadian Pension Plan and/or Old Age Security be deducted for taxes.
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