One of the most common surprises for self-employed Canadians and small business owners is discovering they owe quarterly installment payments to the CRA. Unlike employees who have tax withheld at source, those with business income must proactively pay taxes in advance or face installment interest charges.
Who Must Pay Tax Installments
You are required to make quarterly installment payments if your net tax owing (federal plus provincial) exceeded $3,000 in either of the two preceding tax years AND you expect it to exceed $3,000 in the current year.
For Quebec residents, the threshold for federal installments is $1,800 since provincial installments are paid separately to Revenu Québec.
- Self-employed individuals with no employer withholding
- Investors with significant rental, dividend, or capital gains income
- Employees with large amounts of employment income not covered by withholdings
- Directors of corporations who receive salary or dividends
The CRA sends installment reminders in February and August each year. Receiving a reminder means you likely owe installments — but you are not required to use the CRA's suggested amounts.
The Four Installment Due Dates
Personal income tax installments are due four times per year on fixed dates. Missing any of these dates triggers daily compound interest on the unpaid amount.
- March 15
- June 15
- September 15
- December 15
Corporate installments are due monthly, not quarterly. If you have incorporated, your corporation has separate and more frequent installment obligations.
Three Methods to Calculate Your Installments
The CRA gives you three calculation methods. You are free to use whichever results in the lowest required payment — as long as you avoid interest.
- No-calculation method: pay what the CRA tells you in the reminders (based on prior year taxes)
- Prior-year method: pay 25% of last year's net tax owing each quarter
- Current-year method: estimate this year's tax and pay 25% each quarter
Best strategy: if your income is declining year-over-year, use the current-year method to pay less. If income is rising, use the prior-year or no-calculation method — you will owe a balance at April 30 but avoid installment interest.
Installment Interest and Penalties
CRA charges compound daily interest on late or insufficient installment payments using the prescribed interest rate (currently around 8–10% per annum). This interest is NOT tax-deductible for personal taxpayers.
However, if you overpay in one quarter, the overpayment earns you credit interest that offsets any underpayment interest from other quarters.
- Interest charged: prescribed rate (set quarterly by CRA) compounded daily
- Interest is non-deductible for individuals
- An additional 25% surcharge applies if installment interest exceeds $1,000
How to Pay CRA Installments
You can pay installments through your bank's online bill payment (add "CRA Personal Income Tax Installments" as a payee), through My Account on the CRA website, or in person at a financial institution.
- Online banking: use your SIN as the account number
- CRA My Account: pre-authorized debit or credit card
- Set a calendar reminder 2 weeks before each due date
Key Takeaways
Installment payments are a manageable obligation once you understand the rules. The key is never missing a due date, and choosing the right calculation method based on whether your income is growing or shrinking. A CPA can set up a payment schedule tailored to your actual income so you never overpay unnecessarily.
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