Tax Instalments
If you expect to owe more than $3,000 in net federal tax (or $1,800 in Quebec) in both the current year and either of the two preceding years, the CRA requires you to make quarterly instalment payments. This commonly applies to self-employed individuals, landlords, investors, and retirees with significant income not subject to source deductions.
Instalments are due March 15, June 15, September 15, and December 15. The CRA sends instalment reminders suggesting amounts based on three methods: the no-calculation option (pay last year's amounts), the prior-year option (based on last year's return), or the current-year option (based on your estimate of current-year tax).
If you don't pay your instalments or pay late, the CRA charges instalment interest (compounded daily at the prescribed rate) and may charge a penalty if interest exceeds $1,000. To avoid surprises, review your expected tax liability quarterly and set aside approximately 25–30% of your non-deducted income for tax payments.
How it works
The instalment requirement is a two-year look-back test: the CRA only asks for quarterly instalments if your net tax owing exceeds $3,000 ($1,800 in Quebec, where the province collects its own instalments separately from the federal ones) in the current year and in at least one of the two immediately preceding years. 'Net tax owing' means tax that wasn't already collected through source withholding, which is why the requirement mostly catches self-employed workers, landlords, investors with large non-registered income, and retirees drawing pension or RRIF income without enough tax withheld at source.
The CRA gives you three ways to calculate what to pay: the no-calculation option, which simply follows the amounts on the CRA's own instalment reminder; the prior-year option, which bases each instalment on last year's tax bill; and the current-year option, where you estimate this year's tax yourself. The no-calculation option offers the most protection against interest — if you pay what the CRA suggests, you generally won't be charged instalment interest even if your final tax bill turns out higher, whereas underestimating with the current-year option leaves you exposed to interest on the shortfall.
Because instalments are backward-looking, newly self-employed people are often caught off guard: you generally won't receive instalment reminders in your first year or two of self-employment, since the CRA needs to see two years crossing the $3,000 threshold before requiring instalments — so the obligation often starts the year after income first becomes substantial, right when cash flow may already be tight.
Example: splitting a tax bill into quarterly instalments
Say your total tax bill for the year is $12,000 and none of it is withheld at source because you're self-employed. Assuming you also owed more than $3,000 in one of the two prior years, the CRA requires quarterly instalments.
Splitting $12,000 evenly across the four instalment dates — March 15, June 15, September 15, and December 15 — gives $12,000 / 4 = $3,000 per instalment under the current-year option.
Frequently asked questions
What happens if I ignore a CRA instalment reminder?
The CRA charges instalment interest, compounded daily at the prescribed rate, starting from when each instalment was due, and adds a penalty on top if the total interest charge for the year exceeds $1,000.
Can a salaried employee ever be required to pay instalments?
Yes, if enough non-source income — such as investment income, rental income, or self-employment earnings on the side — pushes your net tax owing over the $3,000 threshold in two of the last three years, even though your paycheque already has tax withheld.
Can I avoid instalments by having more tax withheld from my paycheque instead?
Yes. If you have employment income, you can ask your employer to withhold additional tax, which counts as tax already paid and can reduce or eliminate the net tax owing that triggers the instalment requirement.
Related Terms
CRA (Canada Revenue Agency)
The Canada Revenue Agency (CRA) is the federal body responsible for administering Canada's tax laws, collecting income taxes and GST/HST, and delivering benefit programs such as the Canada Child Benefit (CCB) and the GST/HST credit.
T1 (General Income Tax Return)
The T1 is the standard personal income tax return that Canadian residents file annually with the CRA.