Kelowna Chartered Accountants: Useful Tips for Responding to a First Installment Reminder from the CRA

Right about now, Canada Revenue Agency (CRA) is sending out some unwelcome and surprising news to millions of Canadians.  As Kelowna chartered accountants, we work hard to ensure that these letters never make a surprise visit to your mailbox. However, if you were one of those Canadians who received an Installment Reminder from CRA to make payments of income tax on September 15th and December 15th of this year, then we are here to offer some advice on how to handle the news.

Receiving unexpected mail from the CRA, especially a letter asking for payments of tax to be made this year (instead of when the return is filed next April) can be alarming.  Kelowna chartered accountants are very familiar with these requests but it’s safe to say that most Canadians are not.

Why is the installment payment system so unfamiliar and how can Kelowna chartered accountants, help the situation?

The reason that all of this can be puzzling is that most of us pay income taxes through a different system.  As an employee, tax is automatically deducted from your paycheque by the employer before that paycheque is ever issued.

That tax is then remitted by the employer to the CRA on your behalf and you are credited with those remittances when filing the annual tax return for that year. Easy, right?

As employees, you generally don’t have to worry about this efficient system as it operates without the need to take any additional steps.  However, when retirement begins, it’s not surprising that most people do not contact their Kelowna chartered accountants.  Consequently, they are not aware that it is now up to them to make specific arrangements for the payment of income taxes.

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Some of you may have only had one income source your entire working life and that can add to the confusion.  As you enter retirement, there can be numerous income sources including Canadian Pension Plan and Old Age Security payments.  Maybe you received an employer-sponsored registered pension plan (RPP) or a registered retirement income fund (RRIF).  Unless you’ve already spoken to Kelowna chartered accountants and have made arrangements, none of these payors will deduct income tax from the payments or remit them to the CRA on your behalf.

You, as a taxpayer, may be required to pay installments if the amount of tax owed when a return is filed is more than $3,000 ($1,800 for Quebec residents) in the current (2017) year and either of the two previous (2015 and 2016) years.

First Installment Reminders are issued in August and this has to do with the schedule on which Canadians file their tax returns. Because of the April 30th filing deadline (or June 15th for self-employed and their spouses), the CRA will have the information needed by the end of July to determine whether you are one of the millions of people who should receive a First Installment Reminder.

A First Installment Reminder can be triggered by a retirement within the past two years.

Here’s an example:

John retires at the end of 2015 from employment in which tax deductions were always automatically taken from his paycheque. In January 2016, John’s sources of income change.  He doesn’t receive the paycheque from his employer anymore but received benefits from the Canada Pension Plan and Old Age Security, as well as a monthly withdrawal from an RRIF.

In order for John to have the appropriate amounts of tax withheld from those income sources during 2016, he would have calculated the amount of total tax liability for the year.  He also would have had to make arrangements for that amount to be withheld from one or more of those three income sources.

Most taxpayers who have paid taxes the same ways for many years, don’t realize that these arrangements and calculations are needed. They tend to focus on the excitement of retirement and the adjustment to their new lifestyle.

It is very likely that more than $3,000 in tax will be owed when John files his tax return for 2016. the taxpayer’s income levels and withholding amounts are unchanged for 2017 and it can be expected that, once again, more than $3,000 will be owed on filing, the criteria for the instalment requirement would be met and a tax instalment reminder would be issued in August 2017, after the return for 2016 is assessed.

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If your income levels and withholding amounts are unchanged for 2017, it can be expected that, once again, more than $3,000 will be owed when filing.  This will result in a tax Installment Reminder being issued in August 2017, after the return for 2016 is assessed.

You may be confused why you’re receiving a “reminder” and not a “requirement” to pay.  It is not a law to make installment payments.

Kelowna chartered accountants can help you fully understand each of your THREE options.

1. Pay the amounts specified on the reminder

Pay exactly what the CRA has requested by the due dates of September 15th and December 15th.  This will ensure that you won’t have to pay any interest or penalty charges even if you have an additional amount to pay upon filing in the spring. If you end up paying more in installment payments than owed, a refund will be issued when you file your next tax return.

2. Make payments based on the total amount of tax owed and paid in the previous tax year

If your income has not changed between 2016 and 2017, and available deductions and credits remained the same, it is more than likely that the total tax liability for 2017 will be the same or slightly less than it was in 2016, owing to the indexation of tax brackets and tax credit amounts.

3. Make payments based on an estimated amount of tax owed for the current year (2017)

If your income has decreased from 2016 and 2017, there will be a reduction in tax payable making this option worth considering.  If you wish to take this approach, contact Kelowna chartered accountants at and we can discuss whether this option is best for you.

You can also get more info from CRA’s website here:

Many people don’t prepare their own tax returns, so it’s understandable that this can be overwhelming and confusing to most.  As Kelowna chartered accountants, we want you to be aware of what these reminders are and that you have other options than those stated in the reminder. If you don’t want to bother with tax calculations, then pay the installments as set out in the reminder and you can be sure that you won’t incur any interest charges or penalties.

Now that we’ve covered what the installment reminder is and what other options are available to you, the remaining question that most taxpayers have is how these payments can be made. Again, as your Kelowna chartered accountants, we can discuss the options available to you and which would be best.  More info can also be found here:

If you have received an installment reminder, are confused about your options or need help choosing a payment option, please visit our website at or call us at (250) 448-6299 in Kelowna or (604) 329-7072 in Vancouver to set up your free consultation.