Most employed Canadians never think about tax instalments — their employer withholds taxes each paycheque and remits to the CRA on their behalf. But if you have income that is not subject to withholding (self-employment, rental, investments, pension) and your annual tax bill is substantial, the CRA expects you to pay throughout the year rather than waiting until April.
Who Pays Tax Instalments?
You are required to pay quarterly instalments if:
- Your net tax owing (federal + provincial combined, after credits and withholdings) exceeds $3,000 in the current year, AND
- It was also more than $3,000 in either of the two preceding tax years
Common situations triggering instalment requirements:
- Self-employed individuals — no employer withholding taxes on your behalf
- Rental property owners — rental income is typically not subject to withholding
- Investors — significant dividend or interest income outside registered accounts
- Retirees — pension income with insufficient withholding (OAS, CPP, private pensions not set to withhold enough)
- Commission salespeople — if employer withholding is inadequate
Residents of Quebec: the threshold is $1,800 (instead of $3,000) for combined provincial tax owing, and provincial instalments are paid separately to Revenu Québec.
The Three Methods to Calculate Your Instalment Amount
The CRA offers three calculation methods. You can use any method — the key is to choose the one that matches your situation.
| Method | Calculation | Best For |
|---|---|---|
| CRA Reminder Method (same as prior year) | 25% of last year's net tax per quarter | Similar income year-over-year; simplest |
| Two-years-back Method | First 2 quarters: 25% of two-years-ago tax; Last 2 quarters: 25% of last year's tax | CRA's "no interest" safe harbour if used exactly |
| Current Year Method | Estimate current year's net tax ÷ 4 per quarter | Income significantly changed this year |
Example — Self-Employed Consultant:
- 2024 net tax owing: $12,000
- 2025 net tax owing: $15,000
- Using the prior-year method for 2026: pay $15,000 / 4 = $3,750 per quarter
- Quarterly deadlines: March 15, June 15, September 15, December 15
The Four Quarterly Deadlines
All four instalments are due by 11:59 PM on:
- Q1: March 15, 2027
- Q2: June 16, 2027 (June 15 falls on Sunday)
- Q3: September 15, 2027
- Q4: December 15, 2027
Pay online through CRA My Account ("Make a payment"), through your bank's bill payment (payee: "CRA (Revenue)"), or at Canada Post. Always record your payment date and confirmation number.
Instalment Interest: How It Works
If you miss an instalment or pay less than required, the CRA charges instalment interest from the due date at the prescribed rate (compounded daily). However, the CRA uses a "credit offset" system — if you overpay one quarter, that overpayment earns notional interest that offsets interest on later underpaid quarters.
The practical implication: it is better to overpay a March instalment and underpay in June than the reverse — the March overpayment earns a credit at the same rate the June underpayment is charged.
Instalment interest is calculated and confirmed when your T1 return is assessed in the spring. It is charged on your balance owing and appears on your Notice of Assessment.
How to Reduce Your Instalment Obligations Legitimately
- Maximize RRSP contributions — reduces your net income and therefore your net tax owing (which determines if you exceed the $3,000 threshold)
- Contribute to a TFSA — investment income earned inside a TFSA is not subject to tax, reducing future instalment requirements
- Request increased CPP/OAS withholding — retirees can call Service Canada or Retraite Québec to increase withholding on their pension payments, offsetting instalment requirements
- Adjust employment withholding — file Form TD1 with your employer to request additional withholding on your T4 income
Do Not Ignore the CRA Instalment Reminder
The CRA sends instalment reminders (Form INNS3) in February and August each year. These are not invoices — they are CRA suggestions based on your prior-year tax. You are not legally required to use the CRA's suggested amounts (you can use any valid method), but ignoring instalments entirely when you are required to pay them results in instalment interest that compounds all year. If you receive an instalment reminder and are unsure whether you need to pay, consult a tax professional before the March 15 deadline — that first quarterly payment is the one most people miss.
Frequently Asked Questions
You must pay quarterly tax instalments if your net tax owing (federal + provincial combined) exceeds $3,000 in the current year AND was more than $3,000 in either of the two previous tax years. Most people who pay instalments are self-employed, have significant investment income, rental income, or pension income without sufficient withholding.
Federal tax instalments for individuals are due on March 15, June 15, September 15, and December 15 of each year. Missing a deadline means the CRA charges instalment interest from the due date, calculated daily at the prescribed rate (typically 9–10% annually for 2026). Mark these dates in your calendar at the start of each year.
The CRA provides an instalment reminder in February showing the amounts they suggest you pay, based on three calculation methods: (1) Prior year method — 25% of last year's net tax per quarter; (2) Two-years-back method — 50% of two years ago's net tax for the first two quarters, 25% of last year's net tax for the last two; (3) Current year method — estimate your current year tax and pay 25% per quarter. You can use any method — the CRA method from the reminder letter is simplest and avoids most interest risk.
Missing or underpaying an instalment triggers instalment interest charged daily from the due date at the CRA's prescribed rate. However, if you have overpaid one instalment (e.g., paid more in March than required), that overpayment can offset instalment interest from a later underpaid quarter. The CRA applies a credit offset system. Final interest is calculated when your T1 is assessed.
Yes. If your income drops significantly during the year (job loss, reduced investment income, retirement), you can reduce your instalment payments using the current year method — estimate your actual current-year tax liability and pay 25% per quarter. If you overpay based on a lower estimate, the overpayment becomes a refund when your return is assessed. Just ensure your estimates are reasonable to avoid surprise interest charges.
Unsure About Your Instalment Obligations?
MaxRefund calculates your exact instalment amounts, ensures you pay correctly, and handles your full T1 return to minimize your tax liability year-round.
Explore Personal Tax Services