If you owed tax when you filed your last return, you may be wondering whether the Canada Revenue Agency requires you to make tax instalment payments during the year.
Tax instalments are advance payments toward the tax you would otherwise pay in one lump sum after the end of the year. They are common for self-employed individuals, sole proprietors, business owners, investors, landlords, and others who earn income without enough tax withheld at source.
For employees, tax is usually deducted directly from each paycheque. However, if you earn business income, rental income, investment income, taxable capital gains, pension income with insufficient withholding, or other income where tax is not withheld, the CRA may require instalments.
What Are Tax Instalment Payments?
Tax instalment payments are payments made throughout the year to cover tax that would otherwise be due at the filing deadline. CRA describes instalments as a way to pay tax during the year while you are earning the income, similar to how an employer deducts tax from an employee’s pay.
For most individuals, instalments are due four times per year:
- March 15
- June 15
- September 15
- December 15
Farmers and fishers may have a different instalment schedule. If their main source of income is self-employment income from farming or fishing, and they meet CRA’s instalment criteria, they generally have one instalment due date: December 31.
Who Has to Pay Tax Instalments?
For individuals, including many self-employed people and sole proprietors, you may have to pay tax instalments for 2026 if both of the following apply:
- Your net tax owing for 2026 will be more than $3,000, or more than $1,800 if you are a Quebec resident.
- Your net tax owing in either 2025 or 2024 was also more than $3,000, or more than $1,800 if you were a Quebec resident.
This means you are not automatically required to make instalments just because you owed tax once. CRA looks at your expected current-year net tax owing and your net tax owing from either of the two previous years.
Does This Apply to Self-Employed People?
Yes, many self-employed people are required to make tax instalments.
If you operate as a sole proprietor, your business income is reported on your personal tax return. Since tax is usually not deducted from that income during the year, you may be required to make personal tax instalment payments if your net tax owing meets the CRA threshold.
This can also apply if you earn income from freelancing, consulting, rental properties, investments, capital gains, or other sources where tax is not deducted at source.
What About Incorporated Businesses?
If your business is incorporated, different rules apply. A corporation is generally required to pay corporate taxes by instalment unless an exception applies, such as being in its first tax year or having tax payable of $3,000 or less for the current or previous year.
Corporate tax instalments are usually paid monthly. Some eligible corporations may pay quarterly instalments instead. For a calendar-year corporation that qualifies for quarterly instalments, payments are due on March 31, June 30, September 30, and December 31.
Because corporate instalment rules are different from personal instalment rules, incorporated business owners should not rely only on the personal March 15, June 15, September 15, and December 15 due dates.
How Will I Know If the CRA Expects Instalments?
The CRA sends instalment reminders to people who are likely required to pay tax instalments. For individuals, CRA sends two instalment reminders:
- a February reminder for the March and June payments; and
- an August reminder for the September and December payments.
- You can also view instalment reminders online through your CRA account.
However, a reminder is not always the final answer. If you receive a reminder but your net tax owing for the current year will be $3,000 or less, or $1,800 or less for Quebec residents, CRA says you do not have to pay instalments for that year.
How Much Should You Pay?
CRA provides three options for calculating individual tax instalments.
No-Calculation Option
The no-calculation option is usually best if your income, deductions, and credits stay about the same from year to year. Under this method, you pay the instalment amounts shown on the CRA reminders. CRA calculates those amounts using information from your latest assessed tax return. This is often the simplest method, especially if your income has not changed significantly.
Prior-Year Option
The prior-year option may be useful if your income, deductions, and credits for the current year will be similar to the previous year but significantly different from two years ago.
Under this method, you calculate your instalments based on your prior-year tax information. If you pay the required instalments in full by the due dates, CRA will not charge instalment interest or a penalty unless your estimated amounts are too low.
Current-Year Option
The current-year option may be useful if your income, deductions, and credits for the current year will be significantly different from the previous two years.
Under this method, you estimate your current-year net tax owing, CPP contributions payable, and voluntary EI premiums, if applicable. This option can reduce your instalment payments if your income has dropped, but it also carries risk. If your estimate is too low, CRA may charge instalment interest and penalties.
What Happens If You Do Not Pay Instalments?
If you are required to pay instalments and you miss a payment, pay late, or pay less than required, CRA may charge instalment interest.
CRA charges instalment interest on late or insufficient instalment payments. The interest is compounded daily at the prescribed interest rate, which can change every three months.
CRA may also charge an instalment penalty, but only if your instalment interest charges for the year are more than $1,000. For 2026, CRA calculates the penalty using a specific formula based on your actual instalment interest charges and the greater of $1,000 or 25% of the interest that would have applied if you had made no instalment payments.
Can You Reduce or Avoid Instalment Interest?
Yes. If you realize that you missed or underpaid an instalment, you may be able to reduce interest and penalties by paying your next instalment early or overpaying your next instalment. CRA says this can create instalment credit interest, which can be used against instalment interest charges for the same tax year.
You may also be able to reduce or eliminate instalments by increasing tax withheld from other income sources, such as pension income or employment income. CRA notes that income tax cannot be withheld from some types of income, including self-employment income, investment income, rental income, and capital gains.
Are GST/HST Instalments Different?
Yes. GST/HST instalments are separate from income tax instalments.
If your business is an annual GST/HST filer and your net tax for the previous fiscal year was $3,000 or more, you may have to make quarterly GST/HST instalment payments in the current fiscal year. If your business has branches or divisions that file separate GST/HST returns, the $3,000 threshold applies to the total net tax for the whole business.
This is different from personal income tax instalments and corporate income tax instalments, so it is important to confirm which type of instalment applies to your situation.
How Do You Pay Tax Instalments?
You can usually pay CRA instalments through online banking, CRA’s online payment services, pre-authorized debit, your CRA account, your financial institution, or by mailing a cheque with the correct remittance voucher.
If you pay by cheque, allow enough time for the CRA to receive and process the payment. When a due date falls on a Saturday, Sunday, or public holiday recognized by the CRA, the payment is considered on time if CRA receives it on the next business day.
Speak with a Tax Professional
Tax instalments can be confusing, especially if your income changes from year to year or if you operate a business. Paying too little can lead to interest and penalties, while paying too much can affect your cash flow.
If you are unsure whether you need to make instalment payments or if you need help estimating the correct amount, speak with a qualified tax professional. The right advice can help you avoid surprises, reduce interest, and plan your cash flow more effectively.
If you need help managing your tax obligations, contact us for guidance. Visit our blog for more articles, news, and updates about small business accounting, tax planning, CRA audits, and bookkeeping.