| 19(1) | File No. 5-9315 |
| A. Humenuk | |
| (613) 957-2135 |
January 18, 1990
Dear Sirs:
Re: Instalment Requirements
We are responding to your letter of December 20, 1989, concerning the requirement to make quarterly instalments and to pay instalment interest.
You describe a situation in which a taxpayer was, in 1989, a partner of a law firm and paid quarterly instalments as required by subsection 156(1) of the Income Tax Act (the "Act"). Effective for the 1990 taxation year, he ceased to be a member of the partnership and commences employment elsewhere. In his return of income for 1990, he will be required to report income form the partnership as well as his income from employment. It is expected that the 1990 tax withheld from his employment income will approximate his tax payable for 1989. One of the instalment options described in the 1989 Instalment Guide for Individuals (the Guide) allows an individual to calculate his instalments based on the tax payable for the immediately preceding year (prior year) less the tax withheld from remuneration and other amounts for the current year.
You have requested confirmation that no instalment payments will be required in the situation so described if the taxpayer uses this option.
Our response is formulated on the assumption that subsection 156(1) of the Act does apply to the individual for the 1990 taxation year in that tax will not be withheld from 3/4 of his net income in 1990 and his federal tax payable for 1989 and for 1990 will each exceed $1000.
As stated in the Guide, it is the Department's policy to allow a taxpayer who is calculating his instalments in accordance with subparagraph 156(1)(a)(ii) of the Act, to reduce the aggregate of instalment payments required by the greater of the prior year's tax withheld from his remuneration and other amounts and the current year's tax withheld from such amounts. Provided that either the total tax withheld in the prior year or the total tax which will be withheld in the current year exceeds the tax payable for the prior year, no instalment payments will be required.
However, as one can only estimate the amount of tax which will be withheld in the current year, we cannot confirm that no instalment interest will be charged to a taxpayer who uses the option you describe. As will be stated in the 1990 version of the Guide, a guarantee that instalment interest will not be charged is only available if:
a) an individual calculates the required instalment payments based on the tax payable, tax credits and tax withheld in respect of the prior year;
b) all the information given in the prior year's return of income is correct; and
c) the required payments are all made by the required due dates.
The 1990 Instalment Guide for Individuals should be available in March 1990. If your client requires assistance in determining the amount of instalments required, we suggest he contact his local district taxation office. Please note that written authorization will be required if you intend to enquire on his behalf.
We trust our comments will be of assistance to you.
Yours truly,
for DirectorBusiness and General DivisionSpecialty Rulings directorateLegislative and IntergovernmentalAffairs Branch