CRA Instalment Payments Guide

Do I Need to Pay Instalments?

General Rule

You may need to pay instalments if your net tax owing is more than:

• $3,000 in the current year AND either of the two previous years
• $1,800 for Quebec residents

Common Situations Requiring Instalments

• Self-employment income
• Rental income
• Investment income (dividends, capital gains)
• Pension income without tax withheld
• Multiple income sources

Instalment Due Dates

Three Calculation Methods

Option 1: No-Calculation (CRA Tells You)

• Use amounts on instalment reminder from CRA
• Easiest option
• Based on your previous years' tax
• No interest if you follow their amounts

Option 2: Prior-Year Method

• Pay 1/4 of last year's net tax owing each quarter
• Good if income is similar year-to-year
• May result in balance owing or refund

Option 3: Current-Year Method

• Estimate current year's tax owing
• Pay 1/4 each quarter
• Best if income decreased significantly
• Risk: Underestimate = interest charges

How to Pay Instalments

Online Banking

• Add CRA as payee
• Use your SIN as account number
• Select "Personal Tax Instalments"

CRA My Payment

• Pay through CRA website
• Uses Interac or credit card (fees apply)
• Immediate confirmation

Pre-Authorized Debit

• Set up automatic payments
• Never miss a deadline
• Manage through My Account

Interest and Penalties

Instalment Interest

• Charged if instalments are late or insufficient
• Prescribed rate + 2% (currently ~7-8%)
• Calculated daily, compounded daily

When Interest Is NOT Charged

• Total instalments + withholdings ≥ required amount
• Net tax owing is ≤ $3,000
• You paid CRA's suggested amounts

First Year of Instalments

If you didn't pay instalments last year but need to this year:

• You may not receive a reminder
• Estimate your tax and pay quarterly
• First-time payers sometimes get leniency

Strategies to Manage Instalments

Increase Source Deductions

• Ask employer to withhold extra tax (Form TD1)
• Increases withholding on employment income
• Reduces or eliminates instalment requirement

Set Money Aside

• Transfer 25-30% of non-employment income to savings
• Use for quarterly payments
• Earn interest while you wait

Pay Early If Possible

• Early payments reduce interest charges
• Can offset late payments in other quarters

What If You Can't Pay?

Pay What You Can

Partial payment is better than no payment. Interest only charged on unpaid portion.

Contact CRA

• Explain your situation
• May arrange payment plan
• Financial hardship provisions exist

Instalments for Corporations

Different rules apply:

• Monthly instalments (larger corporations)
• Quarterly for small CCPCs
• Based on previous year or estimated current year

Common Mistakes

• Ignoring reminders: Interest adds up quickly
• Wrong payment type: Ensure it's "instalments" not "balance owing"
• Forgetting December: Q4 is often missed
• Not adjusting for income changes: Update estimates as needed