Whether you’re a full-time employee, self-employed or retired, there are several ways to go about paying your taxes. Whatever you decide, what’s important is that you pay them on time to avoid interest charges.
Are source deductions being made on your income?
Employment income
When paying an employee’s salary, employers must deduct several amounts at source, including federal and provincial income taxes, which are calculated based on your family status and your income for the given period.
Investment income
Investment income is generally not subject to source deductions. Any taxes on such income are therefore paid entirely when the income is declared.
Business or professional income
Income generated by the sale of goods and services is not subject to source deductions. Businesses have until June 15 of the following year to declare their income, but must pay their taxes no later than April 30 of the following year unless they are required to make tax instalments in the current year.
See below to find out more about tax instalments.
Retirement income
- Pension payments : Taxes are deducted at source, based on the assumption that they represent the retiree’s only source of income for the year.
- Canada Pension Plan and Old Age Security (OAS) pension : These are not subject to source deductions.
- Annuities acquired with your Registered Retirement Savings Plan (RRSP) : These are not subject to source deductions.
- Withdrawals from Registered Retirement Savings Plans (RRSPs) : Deductions at source vary according to the amount withdrawn.
| Amount withdrawn | Rates for residents of provinces other than Quebec |
| $5,000 or less |
10 % |
| $5,001 to $15,000 |
20%
|
| Over $15,000 |
30%
|
- Withdrawals from Registered Retirement Income Funds (RRIFs) : Deductions at source are the same as RRSPs, except that they apply only to amounts exceeding the mandatory minimum withdrawal required by law.
Did you know?
Only the interest is taxable on non-registered annuities, or annuities purchased with non-registered (non-RRSP) funds. No source deductions are taken on the interest, however. Find out more about the difference between registered and non-registered plans.
Tax instalments and additional source deductions
1- Tax instalments
If, upon filing your tax return, your net income tax payable is greater than the established threshold, you will be asked to make instalments for the coming year.
Income tax payable threshold:
| Residents of provinces other than Quebec | Quebec residents | |
| Federal |
Quebec |
|
|
3 000 $ |
1 800 $ |
1 800 $ |
In every province, instalment payments are due four times a year on March 15, June 15, September 15, and December 15.
Instalments are usually based on the net tax owed for the year before last for the March and June payments, and the net tax owed for the previous year, less the first 2 payments, for September and December.
You can also calculate the amount of the 4 instalments based only on the net tax owed for the previous year, or based on an estimate of taxes due the current year. These options can be to your advantage if the amount of taxes due in the current year is less than that of the previous year.
2- Increasing source deductions
Some people prefer to increase their source deductions rather than pay quarterly instalments. Simply notify the person/institution making the deductions (e.g. your employer, pension plan or financial institution) of the additional amount you would like withheld.
Note: Financial information provided is based on government tax requirements for the year 2009.