Question

Please provide the information requested by Mr. Smith For 2015, Mr. Smith has combined federal and provincial Tax Payable of $53,000. For this year, his employer withheld $52,000. For 2016, his combined federal and provincial Tax Payable is $59,000. For this year, his employer withheld $52,000. For 2017, he anticipates having combined federal and provincial tax payable of $64,000. He expect that his employer will withhold $60,000. In January 2017, you are asked to provide tax advice to Mr. Smith. He has asked you whether it will be necessary for him to pay instalments in 2017 and, if so indicate the amounts that would be required under each of the three alternative methods of calculating instalments. Indicate which alternative would be preferable. ** Show all your calculations.

Answer 1

Different options for calculating installments:

1. No calculation option

2. Prior year option

3. Current year option

Calculating installments under different options:

1. Under NO CALCULATION OPTION, 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. Under PREVIOUS YEAR OPTION, the previous year tax installment is considered as present year installment.

In that case tax installment would be, $59000-$52000 = $7000. However, this is suitable only when current year calculation is similar to the last year one.

3. Under CURRENT YEAR OPTION, present year assumptions are considered for calculating tax installments.

Hence tax installment would be: $64000-$60000=$4000

IT IS ADVISABLE TO CALCULATE INSTALLMENT IN CURRENT YEAR OPTION SINCE, TAX LIABILITIES ARE CHANGING YEAR TO YEAR.