Every year anyone working of legal age in Canada has to file an income tax return on or before April 30. I regularly file in early March because I’m not good in keeping track of deadlines.
People who are expecting a refund (or thought will have) look forward in filing the return.
Sometimes, you may find yourself owing the CRA (Canada Revenue Agency). It only means that you didn’t pay enough tax.
I’ve been on both side of the fence and I could say there’s not much of a difference if you prepare and expect to get a refund or pay the CRA or neither. But I wouldn’t say no to a refund; I say, send it to my debit account ASAP.
If you have to pay your personal income taxes to CRA, stay with me on this post.
Time changed for good because CRA made it easier for taxpayers to pay what they owe. How convenient isn’t it; take a pick from either technical or traditional method.
3 Ways to Pay Your Personal Income Taxes to CRA
A taxpayer have many options to pay CRA. I prefer the fastest and secure way to pay and that would be through online banking. Which one will you choose?
1. Pay online
- Pay through online banking of your financial institutions (eg. BMO, CIBC, RBC, TD, and Scotiabank)
- Pay through My Payment using Visa Debit, Debit Mastercard, or Interac Online
- Pay through pre-authorized debit on your CRA – My Account
2. Pay through a third-party service provider:
- Canada Post – pay in person with cash or debit card
- PaySimply – pay online via PayPal or credit card: Visa, Mastercard, American Express, and UnionPay
- Plastiq – pay online via credit card: Visa, Mastercard, and American Express
Take note that the abovementioned providers charge fee but if you are using your credit card with cash back then you probably pay less than what is due or nothing at all.
These are the no-fee cash back credit card I recommend:
3. Pay in person to Canadian financial institution using a remittance voucher. Use your debit card to pay an amount owing free of charge.
I’ve tried the three methods in paying a balance owing and it’s quite confusing especially the pre-authorized debit that I don’t recommend it. While I paid fees on Plastiq when I used my credit card.
The easiest way I paid without fee was paying through my bank using the remittance voucher.
This is the best way for me if I have cash; fortunately, I saved funds solely for it. This is the advantage of keeping (and updating) a financial spreadsheet.
Update: Pay CRA Online Through Your Bank
I am updating this post in May 2020 so I could share how time has changed that paying a balance owing is easier than ever.
You can pay CRA just like paying a phone or Netflix bill.
- Download your bank app on a phone.
- Add CRA Income Tax Return on your bill.
- Enter your Social Insurance Number (SIN).
- Pay what you owe. You are not going to get a receipt other than a confirmation and transaction record.
- Check your CRA account. Do you still owe anything?
I always pay everything that I owe so I’m not sure about the outcome if you’ll pay a portion of the balance. My best guest is that the balance will earn additional interest charge.
Important Dates to Remember
I thought of adding the due dates during the year for personal income taxes (individuals) including the self-employed. These dates are reminders that will help you avoid paying late fees.
- Filing of personal income tax return (T1) for last year = on or before April 30 of current year
- Filing of personal income tax return (T1) for last year for self-employed = on or before June 15 of current year
- Filing of personal income tax return (T1) for last year on NETFILE = starts in February of current year
- Paying the balance owing last year = due no later than April 30 of current year (no additional interest)
Note: If you fail to pay the balance owing for the last year tax return by May 30 of the current year, the balance is charged with additional interest charges.
How Is the Interest Calculated
To encourage people who have balance owing, let’s find out the charges of not paying the balance in as little time as possible.
Interest for late fee = 5%
Additional interest charge in 30 days = (5% x balance owing x 30 days) / 365 or 366 for leap year
New balance owing = balance owing + additional interest charge
Example: Balance owing is $1,000.
Additional interest charge in 30 days = (0.05 x 1,000 x 30) / 365 = $4.11 (rounded up)
New balance owing = $1,000 + $4.11 = $1,004.11
The balance will keep on gaining additional interest charge till the balance owing is paid in full hopefully before the current year ends. Or better yet make a one time payment to avoid additional charges and have a peace of mind.
It’s not fun to get a letter from CRA telling how much is the balance along with the interest. OK. Enough with the fees. I’ll show you how I pay my personal income taxes to CRA. Finally.
How to Pay Using Remittance Voucher
At first I file my own personal income tax return using a free / paid tax software then submit it on NETFILE.
When things get complicated, I avail the tax preparation service (eg. LibertyTax and H&R Block, these are not recommendations).
If you don’t have time or don’t want to learn how to use a tax software then let a professional do it for you for a fee. The tax return will be submitted on your behalf.
- Go to a tax preparation service of your choice. Ask recommendation from friends; you might get a discount for the first year.
- Ask for a remittance voucher if you have balance owing. The exact amount is printed on the voucher so there’s no chance of making a mistake.
- Go and pay to your Canadian financial institution.
Like I said paying through the bank is free of charge and if you pay all the balance owing to CRA, you’ll avoid interest charge. How much? Go back up for the computation.
For those who file on their own, the receive the remittance voucher arrives in the mail along with the Notice of Assessment.
If you opted for electronic delivery, you can order online the remittance voucher on My Account for Individuals and also don’t forget to download the assessment.
- Log in on My Account for Individuals.
- Go to Request a remittance voucher on the right sidebar.
- Choose the type of voucher: One time payment (Form T7DR) or Quarterly instalment payment (INNS3).
The voucher will be sent to the mailing address within 14 business days.
Related Post: Why You Cannot Create a CRA Account
How to Pay CRA Through Pre-Authorized Debit
In using the pre-authorized debit, you will set up post-dated payments to the CRA from your bank account. It is important to have enough funds in your chequing account to pay for the one time or recurring post-dated payments.
- Log in on My Account for individuals > Create new agreement
- Choose the Payment type: Individual income tax (T1)
- Choose Payment allocation
- Create agreement by entering the payment date, amount, and banking information
- Download the PDF version of the Pre-authorized debit agreement confirmation
Caveat: Be careful in choosing the payment allocation. I had issue when my payment didn’t go to the balance owing. How did I know? I received a mail and checked online. I called CRA and was relieved to have the issue fixed.
As a result, I vowed to never use the pre-authorized debit again. I would either use the online banking or remittance voucher.
How to Avoid Having a Balance Owing
It’s hard to tell whether you’ll owe the taxman when it’s time to file the tax return. One reason is that the tax deduction at your work has fallen short. Talk to the HR department at your work. Ask to increase the tax deduction.
- Find out what is a Form TD1 (Personal Tax Credits Return).
- Download the Form TD1 in your province.
- Fill up the form. In page 2 of Additional tax to be deducted, write the amount you want to be deducted for every payday.
By doing this, you can avoid paying the CRA. Instead, you might even get a refund which means you pay more than you should.
It’s as if you hand over the money for safekeeping, away from temptation. What will you do with the refund? How about start investing in ETF or save it for future balance owing.
I didn’t realize that this post would be lengthy yet still informative. Writing this post had relieved the moments when I was devastated to pay the taxman. Why me? But then I learned a lot.
With my experiences, I am now saving every month to pay for tax and CPP contributions after filing the income tax return.
Make a one-time payment to CRA, if you could. This is the best takeaway in this post. If it’s not possible then pay every month the balance as much as you can afford.
How did you pay for your personal income taxes to CRA? Did you have any issues?