CRA Tax Instalments: Who Pays and How to Calculate Them

If you earn income the Canada Revenue Agency (CRA) does not tax at source, such as self-employment profit, it wants the tax during the year in four instalments rather than in one balance when you file. You have to pay by instalments when your net tax owing tops $3,000 (or $1,800 in Quebec) this year and in one of the two years before it. This guide covers who has to pay, the four due dates, the three ways the CRA lets you calculate each payment (walked as worked examples), and how instalment interest and the penalty are charged when you pay late or short. Most people caught by this are self-employed contractors whose clients withhold nothing from their pay.

Who has to pay tax by instalments

You have to pay your income tax by instalments when both of these are true, per the CRA's who has to pay rule:

• Your net tax owing this year is more than $3,000 ($1,800 for Quebec residents), and
• Your net tax owing was also more than $3,000 ($1,800 for Quebec) in either of the two previous years.

Net tax owing is the tax you still owe once amounts withheld at source and your refundable credits are taken off, in other words the balance you would otherwise pay when you file. An employee whose employer withholds tax on every paycheque rarely trips this test. A sole proprietor whose clients pay the full invoice with nothing held back usually does, because none of the year's tax has been collected yet. For a self-employed person the amount also includes Canada Pension Plan contributions on business income, which the CRA folds into the instalment calculation.

Both parts of the test matter. A one-off year over $3,000 does not put you on instalments if the surrounding years stayed under it. Two years in a row over the line does. The CRA sends an instalment reminder (form INNS1) when its records suggest you will owe: a February reminder covering the March and June payments, and an August reminder covering the September and December payments. The reminder is a prompt, not the law. You owe instalments only if you meet the two-part test, and you can be required to pay even when no reminder arrives.

When tax instalments are due

Personal tax instalments fall on four fixed due dates each year:

When one of these dates lands on a Saturday, a Sunday, or a public holiday the CRA recognizes, your payment counts as on time if it arrives on the next business day. In 2026 that shifts the first instalment: March 15 is a Sunday, so the first payment is due Monday, March 16, 2026. The June, September, and December dates fall on weekdays and do not move.

One group has a different schedule. If your main source of income is farming or fishing, you make a single instalment for the year, due December 31, instead of four quarterly payments.

The three ways to calculate each instalment

The CRA gives you three options to calculate your instalments. You do not have to tell the CRA which one you picked; you just pay the amounts. To see how they differ, take one freelancer whose net tax owing was $6,000 in 2024 and $9,600 in 2025, and who estimates $7,200 for 2026 after a slower year.

No-calculation option

The CRA works this one out for you and prints the figures on your reminders, so there is nothing to compute. It is built from your two most recent assessed returns: the March and June payments are each a quarter of your 2024 net tax owing, and the September and December payments true the year up to your 2025 net tax owing. For the freelancer above, that is $1,500 in March and June ($6,000 ÷ 4 each) and $3,300 in September and December, for a $9,600 total that matches the 2025 return.

The no-calculation option is the safe default. Pay the amounts on your reminders in full and on time and the CRA will not charge instalment interest or a penalty, even if your actual tax for the year turns out higher. It suits anyone whose income holds roughly steady year to year, and anyone who would rather not forecast.

Prior-year option

Here you base all four instalments on last year's number and split it evenly: your 2025 net tax owing divided by four. For the freelancer, $9,600 ÷ 4 is $2,400 per quarter. This lands at the same $9,600 total as the no-calculation option but spreads it in equal payments instead of front-loading the smaller ones. Use it when this year will look much like last year but differ from the year before.

Current-year option

This one bases the instalments on your own estimate of the year in progress: your projected 2026 net tax owing divided by four. The freelancer expecting $7,200 would pay $1,800 a quarter, $7,200 for the year, which is $2,400 less out of pocket than the other two options. The catch is the estimate. If 2026 comes in higher than $7,200, the instalments were too low and the CRA charges instalment interest on the shortfall. The current-year option is worth it when your income has dropped for the year, and only when you can estimate the year with confidence.

The three options reward different situations. The no-calculation and prior-year options cost the same total here but protect you from interest; the current-year option can cut the cash you tie up during the year, at the price of getting the forecast right.

How instalment interest is charged

Miss a payment, pay it late, or pay less than required, and the CRA charges instalment interest. It is compounded daily at the prescribed rate for overdue amounts, which the CRA resets every quarter; for the third quarter of 2026 (July 1 to September 30) that rate is 7%.

The CRA uses what it calls the offset method. When you prepay an instalment or pay more than the amount due, you earn credit interest that can cancel out the interest on a payment you later make late or short. Paying the September instalment in August, or overpaying it, can offset a June payment that came up short. The credit works only inside this calculation, though. The CRA does not refund instalment interest built up under the offset method; it only uses it to reduce the interest you would otherwise be charged.

The instalment penalty on top of interest

A separate penalty applies only when your instalment interest for the year is more than $1,000. The CRA sets it out on the same interest and penalty page, and the arithmetic runs like this:

1. Take the interest that would apply if you had made no instalment payments at all for the year.
2. Find the greater of $1,000 or 25% of that amount.
3. Subtract that figure from your actual instalment interest for the year.
4. Divide what is left by two. That is your penalty.

Say your instalment interest for the year comes to $3,000, and the interest that would have applied on no instalments at all is $8,000. A quarter of $8,000 is $2,000, which beats the $1,000 floor, so you subtract $2,000 from the $3,000 you were charged and halve the $1,000 difference: a $500 penalty, on top of the $3,000 of interest. The penalty rewards paying something over paying nothing, but it stacks on the interest rather than replacing it.

How to avoid instalment interest and the penalty

Pay the reminder amounts on time. The simplest protection is the no-calculation option. Pay what the CRA prints on your reminders by each due date and neither interest nor the penalty can apply.

Only use the current-year option when income has clearly fallen. Estimating low to keep cash in hand is what triggers instalment interest. If you are unsure where the year will land, the prior-year or no-calculation amount is the safer base.

Prepay or overpay when a payment slips. Because of the offset method, a larger or earlier next payment can wipe out interest on one that was late or short.

Keep the money aside as you earn it. Instalments arrive quarterly whether or not the cash is there. Setting aside a share of every payment you receive turns each due date into a transfer rather than a scramble. Tracking your income and deductible expenses through the year also keeps your net-tax estimate honest, which is what makes the current-year option safe to use.

Common instalment mistakes

Ignoring the reminder because tax was withheld somewhere. A reminder means the CRA expects you to owe. If most of your income is self-employment with no withholding, the reminder is usually right, and skipping it starts the interest clock.

Treating the reminder as optional when none arrives. The requirement follows the two-part net-tax test, not the mail. A strong year can put you on instalments before any reminder catches up.

Under-estimating on the current-year option. Choosing your own lower figure is allowed, but if the year comes in higher, the CRA charges interest on every quarter that fell short.

Forgetting CPP. For a sole proprietor the instalment base includes Canada Pension Plan contributions on business income, not income tax alone, so an instalment sized to income tax only will run short.

How SparkReceipt helps you size each instalment

The current-year option only pays off when you can estimate your net tax owing with confidence, and that estimate depends on knowing your income and deductible expenses to date. SparkReceipt captures both: its AI scanner reads each receipt, sorts your spending into CRA expense categories, and tracks income and expenses side by side, so a live profit figure is a click away rather than a year-end reconstruction. Cleaner expense records also lower your net income, which lowers the instalments you owe, and one-click reports give you (or your accountant) the numbers behind each quarterly decision. Get Started with a free trial and head into the next due date with a figure you trust.

Frequently asked questions

Do I have to pay tax by instalments as a sole proprietor? Only when your net tax owing is more than $3,000 ($1,800 in Quebec) this year and was also over that amount in one of the two previous years. Many self-employed people meet the test because no tax is withheld from their income during the year.

What are the CRA instalment due dates? March 15, June 15, September 15, and December 15. If a date falls on a weekend or a public holiday, the payment is on time if it arrives the next business day. Farmers and fishers instead make one instalment due December 31.

What happens if I ignore an instalment reminder? If you meet the two-part test, you owe the instalments whether or not you act on the reminder, and paying late or short triggers instalment interest compounded daily at the prescribed rate. Follow the no-calculation amounts on the reminder on time and you avoid both interest and the penalty.

Can I pay less than the CRA asks for? Yes, using the current-year option, if you expect this year's tax to be lower. But if your actual tax comes in higher than your estimate, the CRA charges interest on the shortfall, so only estimate low when your income has dropped for the year.

Is the instalment penalty the same as instalment interest? No. Interest applies to any late or short payment. The penalty is separate and applies only when your instalment interest for the year exceeds $1,000, calculated as half the amount by which your interest tops the greater of $1,000 or 25% of the interest you would have owed with no instalments.

Key takeaways

• You must pay tax by instalments when your net tax owing is over $3,000 ($1,800 in Quebec) this year and in one of the two prior years.
• Instalments are due March 15, June 15, September 15, and December 15, moving to the next business day when a date lands on a weekend or holiday; farmers and fishers pay once, on December 31.
• Three options set each payment: no-calculation (the CRA's reminder amount), prior-year (last year's tax ÷ 4), and current-year (your estimate ÷ 4).
• The no-calculation option is interest-safe: pay it on time and the CRA charges no instalment interest or penalty even if you end up owing more.
• Instalment interest is compounded daily at the prescribed rate (7% for the third quarter of 2026); a separate penalty kicks in only when that interest tops $1,000.
• Track income and expenses through the year so a current-year estimate is trustworthy, and set money aside each quarter so the due date is a transfer, not a scramble.