Question

For 2018, Mr. Mason Boardman has combined federal and provincial Tax Payable of $62,350. For this year, his employer withheld $61,600.

For 2019, his combined federal and provincial Tax Payable is $29,760. For this year, his employer withheld $13,740.

For 2020, he anticipates having combined federal and provincial Tax Payable of $52,370. He expects that his employer will withhold $47,390.

In January, 2020, you are asked to provide tax advice to Mr. Boardman. He has asked you whether it will be necessary for him to pay instalments in 2020 and, if so, what the minimum amounts that should be paid are, along with the dates on which these amounts are due. Assume that his estimates for 2020 will be accurate.

Required: Provide the information requested by Mr. Boardman. He would like to know what the amount of instalments are under all three options and which is the best option you would recommend.

Answer 1

There are three different options for calculating installments which are as follows:
1.) Non Calculation Option
Under this method tax is not calculated provided installment for previous years are consistent. However, here the installments for the above two years are not consistent. Hence this alternative is not suitable in the present case.
2.) Previous Year Option
Under this method, the previous year tax installment is considered as present year installment.
In that case tax installment would be, $29,760 - $13,740 = $16,002. However, this is suitable only when current year calculation is similar to the last year one.
3.) Current Year Option
Under this method, present year assumptions are considered for calculating tax installments.
Hence tax installment would be: $52,370 - $47,390 = $4,980
Conclusion
It is advisable to calculate Installment in Current Year Option since, Tax Liabilities are changing year to year.