It was bound to happen sooner or later, but the Canada Revenue Agency (formally known as Revenue Canada) finally caught up to me. I had a good run going but I guess my number came up. For as long as Iâ€™ve been in business for myself I have always been able to pay my income tax on the day I file my tax return. This is the ideal solution to be in because I get the use of the governmentâ€™s money interest free for a full year. People who work at a job have their income tax withheld from their paycheck. Then they buy a RRSP at the end of the year to try to get a tax refund. If you have read my earlier post about getting a tax refund then you know I feel about that.
The ideal way to pay income tax is to pay it all on the day the income tax return is due and this was the situation I was in. I set aside a few thousand dollars each month and place it into an ING savings account. When tax time comes, I just write one big check from the account and keep the interest earned thought out the year. In other word, I have the use of the governmentâ€™s money to make money. Better in my hand than theirs!
The Canada Revenue Agency has a rule that if you owe more than $2,000 in tax in a year then you have to make quarterly installment payments for next yearâ€™s taxes. However, this is not a hard and fast rule and the CRA doesnâ€™t require anyone to make installment payments until they send them an installment notice. Well, after all these years, I finally got that notice. I thought I was free this year because itâ€™s August already and I figure any installment notice would come earlier in the year. Normally, installments are made every 3 months. However, because weâ€™re in August already the CRA wants me to make two big payments â€“ one in September and another in December. These payments mean I will owe nothing when I file my 2006 tax return next April. That means I will lose four months of interest. On a positive note, the CRA based my installments on me maxing out my RRSP contribution limit, which was nice of them. If they based the installments on me not getting a RRSP, I would be getting one big refund!