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The Canadian tax system provides a number of opportunities for taxpayers to save on a tax-assisted basis. Most Canadians are familiar with registered retirement savings plans (RRSPs) and many are also aware of the availability of the tax-free savings account (TFSA). The newest (and probably least well known) such tax-assisted savings opportunity is the first home savings account (FHSA), which was introduced by the federal government in the 2023-24 budget and first became available in 2023.

The Canadian tax system provides a number of opportunities for taxpayers to save on a tax-assisted basis. Most Canadians are familiar with registered retirement savings plans (RRSPs) and many are also aware of the availability of the tax-free savings account (TFSA). The newest (and probably least well known) such tax-assisted savings opportunity is the first home savings account (FHSA), which was introduced by the federal government in the 2023-24 budget and first became available in 2023.

As of November 2024, nearly 1 million (or about 1 in 40) Canadians had opened an FHSA – an impressive number for a program that was not yet two years old. There are, however, likely many more Canadian taxpayers who are eligible for and could benefit from having an FHSA but are unaware of the significant savings and tax advantages which an FHSA offers.

What makes the FHSA program unique among government-sanctioned tax-assisted savings plans is both the very generous tax treatment provided for contributions to and withdrawals from such plans and the enormous flexibility provided to taxpayers when it comes to managing and accessing funds saved through an FHSA.

Most tax-assisted savings plans provide one of two tax advantages – either the opportunity to deduct contributions made from income for tax purposes, or the ability to withdraw funds from the plan free of tax. With an RRSP, funds contributed to the plan can be deducted from income, and funds within the plan can be invested and grow free of tax. However, all funds which are withdrawn from an RRSP – whether original contributions or investment gains – are fully taxable to the RRSP holder at the time of withdrawal. Conversely, when a taxpayer contributes funds to a TFSA, no deduction from income is allowed for the contribution, but investment gains earned within the plan accumulate free of tax, and any withdrawals made (whether of original contributions or investment gains) are received tax-free.

The rules governing FHSAs are unique in that they allow planholders to both claim a deduction from income for contributions made to the plan and to make withdrawals of funds from the plan tax-free (where those funds are used to purchase a home). In addition, funds accumulated within an FHSA can be transferred, on a tax-free basis, to the planholder’s RRSP or to their registered retirement income fund (RRIF). Funds saved within an RRSP can also be transferred on a tax-free basis, within limits, to the planholder’s FHSA. No other currently available tax-assisted savings plan offers taxpayers the ability to transfer funds back and forth between registered plans in this way.

Opening and contributing to an FHSA

The term “first home savings account” is something of a misnomer, as it’s not actually necessary to be a first-time home purchaser in order to qualify. Rather, any Canadian resident who is over the age of 17 but is 71 years of age or younger at the end of the calendar year and who has not lived in a home which they (or their spouse) owned in any of the current or four previous years can open an FHSA. For plans opened in 2025, that would mean that someone who has not lived in a home which they (or their spouse) owned in any of the 2021, 2022, 2023, 2024, or 2025 calendar years would qualify as a “first-time home purchaser”.

Once the FHSA plan is opened, the planholder can contribute up to $8,000 per year to that plan, regardless of their income for that year. The $8,000 per year contribution must be made by the end of the calendar year, but planholders are permitted to carry forward unused portions of their annual contribution limit.

For example, an individual who opens and FHSA in 2025 and contributes $4,000 to an FHSA would be allowed to contribute $12,000 in 2026 (representing $8,000 in contribution for 2026 plus $4,000 carryforward from 2025). Regardless of the schedule on which contributions are made, there is a lifetime limit of $40,000 in contributions for each individual.

As outlined above, the real benefit of the FHSA program lies in the tax treatment of contributions. Individuals who contribute any amount in a year can deduct that amount from income, in the same manner as an RRSP contribution. When the planholder withdraws funds from the FHSA to purchase a first home, those withdrawal amounts – representing both original contributions and investment income earned by those contributions – are not taxed.

While funds are held within the FHSA, they can be held in cash, or can be invested in a broad range of investment vehicles. Specifically, such funds can be invested in mutual funds, publicly traded securities, government and corporate bonds, and guaranteed investment certificates (GICs). Regardless of the investment vehicle chosen, interest, dividends, or any other type of investment income earned by those funds grows on a tax-free basis – that is, such investment income is not taxed, either as it is earned or on withdrawal. 

Withdrawing funds from an FHSA

The purpose of an FHSA is to allow an individual to save for the purchase of a home on a tax-assisted basis. That being the case, amounts within an FHSA can be withdrawn on a tax-free basis only if such withdrawals are “qualifying withdrawals”, meaning that the funds are used to make a qualifying home purchase. In order for a withdrawal to be a “qualifying withdrawal”, the planholder must have a written agreement to buy or build a home (which must be located in Canada) before October 1 of the next year. In addition, the planholder must intend to occupy that home within a year after buying or building it.

Amounts withdrawn from an FHSA and used for any other purpose are not qualifying withdrawals and the funds withdrawn are fully taxable in the year the withdrawal is made.

While Canadians who open an FHSA and make contributions to it are certainly hoping to be able to purchase a home, there are any number of reasons why their plans could change. Fortunately, the rules governing FHSAs provide planholders with a great deal of flexibility when it comes to the disposition of funds saved within an FHSA, in that planholders can transfer any funds held within their FHSA to an RRSP or RRIF on a tax-free basis. Any such amounts transferred from an FHSA to an RRSP or RRIF will be taxable if they are withdrawn from that plan, in the same manner as any other RRSP or RRIF withdrawal.

It's also possible to transfer funds held in an RRSP to one’s FHSA. The amount which can be transferred is limited by the contribution room available for the FHSA, but all such transfers take place on a tax-free basis. Details of the rules governing transfers to and from an FHSA and other registered plans are outlined in detail on the CRA website at https://www.canada.ca/en/revenue-agency/services/tax/individuals/topics/first-home-savings-account/transfers-into-your-fhsas.html and https://www.canada.ca/en/revenue-agency/services/tax/individuals/topics/first-home-savings-account/withdrawals-transfers-out-your-fhsas.html.

Closing an FHSA

Individuals who open an FHSA have 15 years from the date the plan is opened to use the funds for a qualifying home purchase. (Taxpayers must also close their FHSA by the end of the year in which they turn 71.) While these rules do place some pressure on planholders with respect to the timing of their home purchase, there is some flexibility. Specifically, planholders who have not made a qualifying home purchase within the required 15-year time frame (or by the end of the year in which they turn 71) must then close the FHSA plan, but can still transfer funds held in the FHSA to their RRSP or RRIF, on a tax-free basis.

A detailed summary of the rules and administrative practices governing FHSAs is available on the Canada Revenue Agency website at https://www.canada.ca/en/revenue-agency/services/tax/individuals/topics/first-home-savings-account.html.

Over the past few decades the Canada Revenue Agency, like many other organizations and businesses, has gradually shifted to providing more and more of its services online, through its website. The Agency has been remarkably successful in bringing the Canadian taxpayer along with those efforts to the point where the vast majority (93%) of all individual income tax returns are now filed by electronic means, through the CRA website.

Over the past few decades the Canada Revenue Agency, like many other organizations and businesses, has gradually shifted to providing more and more of its services online, through its website. The Agency has been remarkably successful in bringing the Canadian taxpayer along with those efforts to the point where the vast majority (93%) of all individual income tax returns are now filed by electronic means, through the CRA website.

That statistic means that most Canadian taxpayers are familiar with the concept of obtaining tax services online, at least when it comes to filing their tax returns (although the majority of taxpayers do still pay someone else to prepare and file their return). It’s likely, however, that many are not aware of the many other digital and online services which are available to individual taxpayers through the CRA website, beyond simply filing a tax return.

Those services are provided, for the most part, through “My Account”, a web-based service which enables taxpayers to obtain personal tax information and manage their tax affairs almost entirely online. Using My Account, taxpayers can view a Notice of Assessment, change a tax return, make a payment to the CRA, track the amount of instalment payments made during the year, receive messages from the Agency, respond to a query from them and/or upload documents as needed, or dispute a Notice of Assessment issued by the CRA. There are, in fact, nearly 50 separate tax and benefit related services which are provided through My Account. A full listing of those services can be found on the CRA website at https://www.canada.ca/en/revenue-agency/services/e-services/digital-services-individuals/account-individuals/about-account/services-my-account.html.

To encourage taxpayers to move to the online management of their taxes, the CRA recently took steps to simplify the registration process for My Account, making it possible to complete that registration entirely online, at https://www.canada.ca/en/revenue-agency/services/e-services/cra-login-services/register-cra-sign-in-services.html.

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A taxpayer who chooses to effect registration for My Account online must first provide their social insurance number and date of birth, as well as information from the most recent tax return filed with the CRA. It’s then necessary to use a mobile device to take a real-time photograph of themself as well as a photograph of an accepted government-issued photo identification document. For this purpose, accepted government issued photo ID documents include a Canadian passport, a Canadian driver’s licence, or a provincial or territorial photo ID. (Note that a posting on the CRA website on July 30, 2025 indicates that passports are temporarily not being accepted as an identity verification option, but there is no indication of when that situation will be resolved.) Once those two photos are uploaded and the CRA has verified the taxpayer’s identity, the taxpayer will have immediate access to all of the services provided through My Account.

Before the online method was available, taxpayers who wished to sign up for My Account had to wait for an access code to be sent to them by mail. It’s still possible to follow that procedure in order to register for My Account, and some taxpayers may prefer that option. In order to do so, such taxpayers will similarly start their registration online at https://www.canada.ca/en/revenue-agency/services/e-services/cra-login-services/register-cra-sign-in-services.html, by providing their social insurance number, date of birth, and information from the most recent tax return filed with the CRA. They will then request a CRA access code, which will be sent by mail (a process which generally takes about 10 days). Once the access code is received, the registration process can be completed by entering that access code on the CRA website. Once that is done, the taxpayer will have full access to all My Account services.

Canadians who are registered for online banking at most Canadian financial institutions have another option when it comes to registering for and using My Account. Many such Canadian financial institutions have entered into a “Sign-in Partner” arrangement with the CRA, which allows taxpayers to register for and sign into My Account using the same id and password which they have set up for online banking, thus avoiding the need to remember yet another online id and password. A listing of the financial institutions which are part of this arrangement can be found on the CRA website at https://www.canada.ca/en/revenue-agency/services/e-services/cra-login-services/help-cra-sign-in-services/sign-in-partners.html.

For taxpayers who are concerned about the security of their personal banking information while using Sign-in Partner, a Privacy Notice posted on the CRA website indicates that the Sign-In partner which the taxpayer chooses is not disclosed to the Agency, and that no personally identifiable information is exchanged between the CRA and the financial institution.

Regardless of the method used to register for My Account, once registration is complete, the process for logging in to My Account is the same for all taxpayers. The login page can be found on the CRA website at https://www.canada.ca/en/revenue-agency/services/e-services/cra-login-services.html, and the process begins with the taxpayer inputting their id and password. One further step is then needed, as the CRA utilizes multi-factor authentication (MFA) in order to ensure the security of its online services, including My Account. As part of the registration/login process, the taxpayer will have been asked to provide a telephone number. When logging in, and after entering their id and password, the taxpayer will receive a one-time passcode, which can be provided through a call or a text message (at the taxpayer’s option) to that telephone number. Once that one-time passcode is correctly entered on the CRA website, access to the services of My Account is made available.

The CRA does still provide other methods by which taxpayers can have questions answered or obtain access to their personal tax information other than through its website, but the number and availability of such other methods has been diminishing for several years. The CRA still maintains its Individual Income Tax Enquiries Line (1-800-959-8281) where client services agents who have access to personal tax information can assist taxpayers but, as the CRA acknowledges on its website, wait times for that service are long and taxpayers who call are sometimes redirected to automated services, rather than reaching a client services agent.

The reality, now and in the future, is that the CRA is moving more and more to delivering tax information and tax services online and that the Agency’s resources will be increasingly allocated to that end. Becoming registered for My Account and dealing with the CRA through that service is likely to provide most taxpayers with the quickest and most comprehensive means of managing their tax affairs, and of obtaining tax services from the CRA.

A full outline of the digital tax services provided by the Agency to individual Canadian taxpayers can be found on the CRA website at https://www.canada.ca/en/revenue-agency/services/e-services/digital-services-individuals.html.

According to numbers released by Statistics Canada there were, as of July 1, 2024, an estimated 2.5 million Canadians aged 65 to 69 and around 2 million Canadians who were between the ages of 70 and 74. That being the case, it’s likely that during the 2025 calendar year, hundreds of thousands of Canadians will reach the age of 71 and, for retirement income planning purposes, that is a very consequential birthday.

According to numbers released by Statistics Canada there were, as of July 1, 2024, an estimated 2.5 million Canadians aged 65 to 69 and around 2 million Canadians who were between the ages of 70 and 74. That being the case, it’s likely that during the 2025 calendar year, hundreds of thousands of Canadians will reach the age of 71 and, for retirement income planning purposes, that is a very consequential birthday.

Over the past several decades, the percentage of Canadian workers who are members of an employer-sponsored registered pension plan has steadily declined. For the majority of workers who can’t look forward to receiving such an employer pension in retirement, the next best option has been to save through contributing to a registered retirement savings plan (RRSP). And, regardless of the amount saved or whether the planholder is retired, partly retired, or still in the full-time work force, every RRSP holder who reaches the age of 71 this year will be required, by the end of the calendar year, to make a decision on how to structure and invest their retirement income funds for the remainder of their lives.

The need to make that decision arises from the rule that all taxpayers who hold funds within an RRSP are required to collapse that RRSP by the end of the calendar year in which they turn 71 years of age – no exceptions, and no extensions. It’s a hugely consequential decision, as the course of action chosen will affect the individual’s income for the remainder of their life and, in some cases, actions taken cannot be undone.

While the actual decision is a complex one, the options available to a taxpayer who must collapse an RRSP are actually quite few in number – three, to be exact. They are as follows:

• collapse the RRSP and include all of the proceeds in income for that year;
• collapse the RRSP and transfer all proceeds to a registered retirement income fund (RRIF); and/or
• collapse the RRSP and purchase an annuity with the proceeds. 

It’s not hard to see that the first option doesn’t have much to recommend it. Collapsing an RRSP without transferring the balance to an RRIF or using that amount to purchase an annuity means that every dollar in the RRSP will be treated as taxable income for that year. In some cases, where a substantial six figure amount has been saved in the RRSP, that can mean losing nearly half of the RRSP proceeds to income tax. And, while any balance of proceeds left can then be invested, tax will be payable on all investment income subsequently earned.

As a practical matter, then, the choices come down to two: an RRIF or an annuity. And, as is the case with most tax and financial planning decisions, the best choice will be driven by one’s personal financial and family circumstances, risk tolerance, cost of living, and the availability of other sources of income to meet such living costs.

The annuity route has the great advantages of simplicity and certainty. In exchange for a lump-sum amount paid by the taxpayer, the issuer of the annuity agrees to pay that taxpayer a specific sum of money, usually once a month, for the remainder of their life. Annuities can also provide a guarantee period, in which the annuity payments continue for a specified time period (five years, 10 years), even if the taxpayer dies during that time. Finally, annuities can be set up as joint annuities, in which annuity payments will continue until the death of the last annuitant – such joint annuities are most often purchased by spouses. Regardless of how the annuity is structured, the amount of monthly income which can be received is determined by the amount used to purchase the annuity and also by the gender and, especially, the age of the annuity purchaser(s).

The other factor influencing the amount of income which can be received from an annuity is the interest rates which prevail at the time the annuity is purchased. Between 2009 and 2022, interest rates were so low that an annuity purchase had very little to recommend it. Beginning in early 2022, however, the Bank of Canada increased its benchmark rate several times, and annuity payment rates increased as a result. Currently (as of July 2, 2025) annuity rates for each $100,000 paid to the annuity issuer by a taxpayer who is 70 years of age range from $614 to $663 per month for a male taxpayer and from $564 to $611 for a female taxpayer (the actual rate is set by the company which issues the annuity, and will differ slightly from company to company). Those rates do not include any guarantee period.

For taxpayers whose primary objective is to obtain a guaranteed life-long income stream without the responsibility of making any investment decisions or the need to take any investment risk, an annuity can be an attractive option. There are, however, some potential downsides to be considered. First, an annuity can never be reversed. Once the taxpayer has signed the annuity contract and transferred the funds, they are locked into that annuity arrangement for the remainder of their life, regardless of any change in circumstances that might mean an annuity is no longer suitable. Second, unless the annuity contract includes a guarantee period or is structured as a joint annuity, there is no way of knowing how many payments the taxpayer will receive. If they die within a short period of time after the annuity is put in place, there is usually no refund of amounts invested – once the initial transfer is made at the time the annuity is purchased, all funds transferred belong to the annuity company. Third, most annuity payment schedules do not keep up with inflation – while it is possible to obtain an annuity in which payments are indexed, having that feature will mean a substantially lower monthly payout amount. Finally, where the amount paid to obtain the annuity represents most or all of the taxpayer’s assets, entering into the annuity arrangement means that the taxpayer will not be leaving an estate for their heirs.

The second option open to taxpayers is to collapse the RRSP and transfer the entire balance to a registered retirement income fund, or RRIF. An RRIF operates in much the same way as an RRSP, with two major differences. First, it’s not possible to contribute funds to an RRIF. Second, the taxpayer is required to withdraw an amount from their RRIF (and to pay tax on that amount) each year. That minimum withdrawal amount is a percentage of the outstanding balance, with that percentage figure determined by the taxpayer’s age at the beginning of the year. For RRIF holders who are 71 at the start of the year, the required withdrawal percentage is 5.28%, and it increases in each subsequent year. While the taxpayer can always withdraw more in a year (and pay tax on that withdrawal), they cannot withdraw less than the minimum required withdrawal for their age group.

Where a taxpayer holds savings in an RRIF, they can invest those funds in the same investment vehicles that were used while the funds were held in an RRSP. And, as with an RRSP, investment income earned by funds held inside an RRIF are not taxed as they are earned. While the ability to continue holding investments that can grow on a tax-sheltered basis provides the taxpayer with a lot of flexibility, that flexibility has a price in the form of investment risk. As is the case with all investments, investments held within an RRIF can increase in value – or decrease – and the taxpayer carries the entire investment risk. When things go the way every investor wants them to, investment income is earned while the taxpayer’s underlying capital is maintained, but that result is never guaranteed.

On the death of an RRIF annuitant, any funds remaining in the RRIF can pass to the RRSP or RRIF of the annuitant’s spouse without payment of tax. Where there is no spouse, the balance of funds in the RRIF will be treated, for tax purposes, as income to the RRIF annuitant in the year of death, and must be reported as income on the tax return for that year.

While the above discussion of RRIFs versus annuities focuses on the benefits and downsides of each, it’s not necessary – and in many cases not advisable – to limit the options to an either/or choice. It is possible to structure a retirement income plan to provide, to some extent, for both of the seemingly irreconcilable goals of lifetime income security and capital (and estate) growth. Combining the two alternatives – annuity and RRIF – either now or in the future can go a long way toward satisfying both objectives.

For everyone, whether in retirement or not, spending is a combination of non-discretionary and discretionary items. The first category is made up mostly of expenditures for income tax, housing (whether rent or the costs of owning a house – even where the mortgage has been paid off, costs like property taxes and utilities must still be paid), food, insurance costs, and (especially for older Canadians) the cost of out-of-pocket medical expenses. The second category, that of discretionary expenses, includes entertainment, travel, and the cost of any hobbies or interests pursued. A strategy which utilizes a portion of RRSP savings to create a secure lifelong income stream to cover non-discretionary costs can remove the worry of outliving one’s money, while the balance of savings can be invested for growth and to provide the income to be used for discretionary spending.

Such a secure income stream to cover non-discretionary expenses can, of course, be created by purchasing an annuity. As well, although most taxpayers don’t think of them in that way, the Canada Pension Plan and Old Age Security program have many of the attributes of an annuity, with the added benefit that both are indexed to inflation. By age 71, all taxpayers who are eligible for CPP and OAS will have begun receiving those monthly benefits. Consequently, in making the RRIF/annuity decision at that age, taxpayers should include in their calculations the extent to which CPP and OAS benefits will pay for their non-discretionary living costs.

As of July 2025, the maximum OAS benefit for most Canadians (specifically, those who have lived in Canada for at least 40 years after the age of 18) is about $735 ($808 for those aged 75 and older) per month. The amount of CPP benefits receivable by the taxpayer will vary, depending on their work history, but the maximum current benefit which can be received at age 65 is $1,433. As a result, a single taxpayer who receives the maximum CPP and OAS benefits at age 65 will have $26,000 in annual income ($2,168 per month). And, for a married couple, of course, the total annual income received from CPP and OAS can be about $52,000 annually, or $4,336 per month. While $26,000 a year isn’t usually enough to provide a comfortable retirement, for those who go into retirement in reasonable financial shape – meaning, generally, without any debt – it can go a long way toward meeting non-discretionary living costs. In other words, most Canadians who are facing the annuity versus RRIF decision already have a source of income which is effectively guaranteed for their lifetime and which is indexed to inflation. Taxpayers who are considering the purchase of an annuity to create the income stream required to cover non-discretionary expenses should first determine how much of those expenses can already be met by the combination of their (and their spouse’s) CPP and OAS benefits. The amount of any needed annuity purchase can then be set to cover off any shortfall. 

While the options available to a taxpayer at age 71 with respect to the structuring of future retirement income are relatively straightforward, the number of factors to be considered in assessing those factors and making that decision are not. All of that makes for a situation in which consulting with an independent financial advisor on the right mix of choices and investments isn’t just a good plan, it’s a necessary one.

By the time summer arrives, Canadian taxpayers have filed their income tax returns for the previous year, have received a Notice of Assessment from the tax authorities with respect to that return, and have either saved or spent their tax refund or, less happily, have paid any balance of tax owing.

By the time summer arrives, Canadian taxpayers have filed their income tax returns for the previous year, have received a Notice of Assessment from the tax authorities with respect to that return, and have either saved or spent their tax refund or, less happily, have paid any balance of tax owing.

It’s therefore a surprise when, in mid to late July, unexpected mail arrives from the Canada Revenue Agency (CRA), and the information in that mail will likely be both unfamiliar and unwelcome. Specifically, the enclosed Instalment Reminder form will advise the recipient that, in the view of the CRA, they should make instalment payments of income tax on September 15 and December 15 of 2025 – and will helpfully identify the amounts which should be paid on each date.

No one particularly likes receiving unexpected mail from the tax authorities and correspondence which suggests that the recipient should be making payments of income tax for 2025 to the CRA during the year (instead of when they file the return for 2025 in April 2026) is likely to be both perplexing and somewhat alarming. It’s fair to say that most Canadians aren’t familiar with the payment of income tax by instalments, and are therefore unsure how to proceed the first time they receive an Instalment Reminder.

The reason that the instalment payment system is unfamiliar to most Canadians is that most of us pay income taxes during our working lives through a different system. Every Canadian employee has tax automatically deducted from their paycheque (“at source”) before that paycheque is issued, and that tax is remitted by the employer to the CRA on the employee’s behalf. Such deductions and remittances accrue to the employee’s benefit, and they are credited with those remittances when filing their annual tax return for that year. It’s an efficient system, but it’s also one which is largely invisible to the employee, and certainly one which operates without the need for the employee to take any steps on their own.

Where an individual is no longer an employee – for instance, they start a business and become self-employed, or retire and begin to receive retirement income from various government and non-government sources – such deductions and remittances are no longer automatically made. However, Canadian tax rules provide that, where the amount of tax owed when a return is filed by the taxpayer is more than $3,000 ($1,800 for Québec residents) in the current (2025) year and either of the two previous (2023 and 2024) years, that taxpayer may be subject to the requirement to pay income tax by instalments.

The reason that first instalment reminders are issued in August has to do with the schedule on which Canadians file their tax returns. The amount of tax payable on filing for the immediately preceding year can’t be known until the tax return for that year has been filed and assessed, and the tax return filing deadline for individuals is April 30 (or June 15 for self-employed taxpayers and their spouses). Consequently, by the middle of July, the CRA will have the information needed to determine whether a particular taxpayer should receive a first Instalment Reminder for the current year

Taxpayers who receive that first Instalment Reminder in July may also be puzzled by the fact that it is a “Reminder” and not a “Requirement” to pay. The reason for that is that those who receive it are not actually required by law to make the amount of instalment payments of tax specified in the Reminder. There are, in fact, three options open to the taxpayer who receives an Instalment Reminder.

First, the taxpayer can pay the amounts specified on the Reminder, by the respective due dates of September 15 and December 15. A taxpayer who does so can be certain that they will not have to pay any interest or penalty charges even if they do have to pay an additional amount on filing in the spring of 2026. If the instalments paid turn out to be more than the taxpayer’s actual tax liability for 2025, they will of course receive a refund on filing.

Second, the taxpayer can make instalment payments based on the total amount of tax which was owed and paid for the 2024 tax year (including any balance that was owed on filing). If a taxpayer’s income has not changed between 2024 and 2025 and their available deductions and credits remain the same, the likelihood is that total tax liability for 2025 will be slightly less than it was in 2024, owing both to the indexation of tax brackets and tax credit amounts and to the reduction in the tax rate on the first $57,375 in taxable income which took effect as of July 1, 2025.

Third, the taxpayer can estimate the amount of tax which they will actually owe for 2025 and can pay instalments based on that estimate. Where a taxpayer’s income has dropped significantly from 2024 to 2025 (as can happen, for instance, in the first year of retirement) and there will consequently be a reduction in tax payable, this option may be worth considering. Taxpayers who wish to pursue this approach can obtain the information needed to estimate current year taxes (federal and provincial tax brackets and rates) on the Canada Revenue Agency website at https://www.canada.ca/en/revenue-agency/services/tax/individuals/frequently-asked-questions-individuals/canadian-income-tax-rates-individuals-current-previous-years.html#federal.

All of this may seem like a lot of research and calculation effort, especially when one considers that most Canadians don’t even prepare their own tax returns. And those who don’t want to be bothered with the intricacies of tax calculations can pay the amounts set out in the Instalment Reminder, secure in the knowledge that they will not incur any penalty or interest charges and that, should those amounts ultimately represent an overpayment of taxes, that overpayment will be recovered and refunded when the return for 2025 is filed next spring.

Once they have resigned themselves to the realities of the tax instalment system, the next question that most taxpayers have is how such payments can be made. The options open to taxpayers in that regard are helpfully outlined on the Canada Revenue Agency website at https://www.canada.ca/en/revenue-agency/services/payments/payments-cra/individual-payments/income-tax-instalments.html.

Two quarterly newsletters have been added – one dealing with personal issues, and one dealing with corporate issues.

Two quarterly newsletters have been added – one dealing with personal issues, and one dealing with corporate issues.

They can be accessed below.

Corporate:

Issue #72 Corporate

Personal:

Issue #72 Personal