Steve, an Ontario taxpayer, has come to you for advice on the payment of income tax instalments.

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Question:

Steve, an Ontario taxpayer, has come to you for advice on the payment of income tax instalments. He has provided you with the following information on his actual or estimated combined federal and provincial tax liability and the actual or estimated amounts of withholding by his employer:

Estimated

2019 2020 2021

Total income tax liability $29,000 $25,000 $35,000

Total income tax withheld 28,000 22,000 27,000

Required:

(a) Briefly explain whether Steve is required to make income tax instalments in respect of 2021.

(b) Calculate the options for the instalment payments in 2021 and indicate when they are due. Be precise with the dates and the amount due on each date.

(c) Which of these options will be reflected in the Canada Revenue Agency’s Instalment Reminder Notices for the 2021 instalments?

(d) What are the consequences of not paying the final instalment until Steve files his tax return on April 30, 2022? Assume that the basic prescribed rate on employee or shareholder loans is 1%. (Ignore the effects of any leap year).