Question

Exercise Two - 4

Subject: Individual Instalments

John Lee, a resident of Newfoundland, had net tax owing for 2018 of $3,500, net tax owing for 2019 of $1,500, and expects to have net tax owing for 2020 of $4,500. Is he required to make instalment payments for 2020? If so, what would be the minimum quarterly payment and when would each instalment be due?

Exercise Two - 5

Subject: Individual Instalments

At the beginning of 2020, the following information relates to Jesse Forbes:

Year	Tax Payable	Amounts Withheld
2018	$53,000	$52,000
2019	59,000	52,000
2020 (Estimated)	64,000	60,000

Is Jesse required to make instalment payments during 2020? If he is required to make instalment payments, indicate the amounts that would be required under each of the three alternative methods of calculating instalments. Indicate which alternative would be preferable.

Answer 1

A)

As his net tax owing in the current year and one of the two preceding years is in excess of $3,000, he is required to

make instalment payments.

The minimum amount would be based on the preceding taxation year's net tax owing of $1,500, and would be

$375 ($1,500/4) per quarter. They will be due on March 15, June 15, September 15, and December 15.

b) Jessi's net tax owing amounts will be as follows:

2018 - $1,000 ($53,000 - $52,000)
2019-  $7,000 ($59,000 - $52,000)
2020-  $4,000 ($64,000 - $60,000)

As the net tax owing exceeds $3,000 in the current year and the first preceding year, instalments are required. The three alternatives for calculating instalment payments are as follows:

1. Based on the estimate for the current year, the instalments would be-

$1,000 ($4,000/4).

2. Based on the estimate for the preceding year, the instalments would be-

1,750 ($7,000/4).

3. Based on the second preceding year, the first two instalments would each be-

$250 ($1,000/4).

The second two instalments would each be $3,250 {[1/2][7,00 - ($250)(2)]}.

The instalments would total $7,000, the same amount as under the preceding year alternative.

While the first two instalments are lower under the second preceding year alternatives, the total for all the instalments under this alternative is $7,000, higher than the $4,000 total under the current year alternative. The current year alternative would be preferred.