When the CRA processes your income tax return, it will send you a Notice of Assessment. This Notice of Assessment will show a tax balance that you owe to the CRA and it is possible that you may not be in a position to pay this amount immediately and in one lump sum. When you cannot pay the amount owed, you can get professional help by contacting a tax service office to set up a tax payment plan schedule which will be mutually acceptable to you and the CRA.
It is crucial on your part to let the CRA know about your payment problem. It’s important to work out a tax payment plan schedule as early as possible. If you fail to do so, compound interest will be charged to you on the unpaid tax balance and the interest penalty will begin from the annual filing deadline. It will continue until the full tax amount is paid.
The CRA allows taxpayers to pay their tax amounts in installments if they can prove financial hardship. These taxpayers will then be required to pay their income tax amounts in regular installments within the financial year according to a tax payment plan they will submit rather than paying a lump sum amount on 30th April. This takes place when insufficient income tax is withheld from their earnings over the course of a financial year.
Common sources of income that may cause such a situation are rental income, self-employment income, investment income, income from more than one source of employment and some pension payments.
Once a tax payment plan is negotiated, you can remember that income tax installments can be paid by sending post-dated cheques to the CRA or through the `My Payment’ service or through your financial institution.
The tax payment plan can also be worked out with the CRA as a pre-authorized payment plan. The installment payments that are pre-authorized can be debited from your bank account. This kind of a pre-authorized tax payment plan can be arranged with the assigned CRA collection agent. You can also complete the pre-authorized tax payment plan through the monthly Installment Payments and mail it to the CRA. Once a tax payment is settled with CRA, you are required to make steady payment as agreed on. Default payment, even once, may jeopardize the validity of the negotiated tax payment plan.