CRA Installment Payments: When and How to Pay

The CRA requires tax installments when your net tax owing exceeds $3,000 in the current year AND in either of the two preceding years. Net tax owing means your total federal and provincial tax minus amounts already withheld at source — so if you have a T4 job with payroll deductions and a small side business, you may still fall below the threshold.

Common groups who pay installments: self-employed business owners and freelancers, landlords with rental income, investors earning significant dividends or capital gains, retirees with pension income not fully taxed at source, and anyone earning commission or bonus income without adequate withholding.

One important administrative detail: the CRA sends installment reminders (form INNS1) in February and August to people it expects will owe installments. As a practical matter, if you don't receive a reminder, you generally don't need to pay installments — even if your net tax owing exceeds $3,000. But don't rely on this alone. Check your CRA My Account to be sure. If you received the reminder and simply ignored it, the CRA will charge interest and potentially penalties.

Individual tax installments are due quarterly on four dates: March 15, June 15, September 15, and December 15. If a due date lands on a weekend or public holiday, the CRA considers your payment on time if it's received on the next business day.

There are two exceptions to the quarterly schedule. Farmers and fishers whose main income source is self-employment only have one installment payment — due December 31. And if a taxpayer passes away during the year, installments due after the date of death are waived.

The CRA gives you three options for calculating your installment amounts. You can choose whichever results in the lowest payments without triggering penalties. Understanding when each option makes sense is the key.

Option 1 — No-Calculation: Pay exactly what the CRA suggests on your reminder notice. The first two installments (March and June) are based on your 2024 tax return; the last two (September and December) adjust to match your 2025 tax liability. This is the safest approach — you won't face penalties if you pay these amounts — but it can result in overpayment if your income has dropped.

Option 2 — Prior-Year: Divide last year's total net tax owing by four and pay equal quarterly installments. For 2026, you'd divide your 2025 net tax owing by four. This works well when your income is stable year over year.

Option 3 — Current-Year Estimate: Estimate your 2026 net tax owing and divide by four, paying equal quarterly amounts. This is best when your income changed significantly — up or down — from prior years. The risk: if you underestimate and pay too little, you'll owe installment interest. This method requires careful income projection.

The CRA charges installment interest on any shortfall. The rate is the prescribed rate plus 4%, compounded daily. In the first quarter of 2026, the prescribed rate was 3%, making installment interest 7% — and because it compounds daily, the effective annual rate is over 7.25%.

If your total installment interest for the year exceeds $1,000, the CRA may also assess an installment penalty. The penalty calculation is complex, but the bottom line: significant underpayment gets expensive fast.

There's a partial offset: the CRA credits you with 'contra-interest' for installments paid early or in excess. If you're late on one quarter, overpaying the next can reduce the net interest charged. But the smarter move is paying the right amounts on time.

One important watch-out: some bank payments take one to two business days to process. If you're paying the morning of the due date, check with your financial institution that the payment will be recognized as received that day. A payment processed the following business day is technically late and can trigger interest charges.

Not everyone needs to pay quarterly installments. Here are practical strategies to reduce or avoid them: