Most employed Canadians have income tax withheld from every paycheque and never need to think about installments. But if you are self-employed, have investment income, rental income, or other income without tax withheld, the CRA may require you to pay your tax in quarterly installments throughout the year rather than as a lump sum at filing time.
The CRA requires quarterly installment payments when your net tax owing exceeds the threshold in two consecutive years. Common situations where this applies:
There are three methods to calculate your installment amounts. You can use whichever results in the lowest installment interest:
The CRA sends installment reminders in February and August showing suggested amounts based on your prior year's tax. If you pay these suggested amounts by the due dates, you will not be charged installment interest — even if your actual tax owing turns out to be higher. This is the simplest approach.
Pay the same total amount you owed in the previous year, divided into four equal quarterly installments. If you owed $8,000 last year, pay $2,000 per quarter. This protects you from interest as long as you pay on time.
Estimate your current year's tax and pay quarterly installments based on that estimate. If you estimate correctly, this can reduce your payments compared to prior-year methods. However, if you underestimate, you will owe installment interest on the shortfall.
If you miss installment payments or pay less than required, the CRA charges compound daily interest at the prescribed rate (currently around 9–10%) from the date the payment was due. The interest is calculated on the difference between what you paid and what you should have paid.
If your installment interest for the year exceeds $1,000, the CRA may also charge an installment penalty equal to 50% of the interest charges above $1,000.
Installment payments made during 2025 are credited against your 2025 tax owing when you file your return in spring 2026. The total installments paid are reported on line 47600 of your T1 return. If your installments exceed your actual tax owing, you receive a refund of the overpayment.
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Get KOHO Free — Use Code 45ET55JSYAYes. If you owed more than $3,000 in the prior two years, the CRA will send you an installment reminder notice in February (for March and June payments) and August (for September and December payments). However, receiving a reminder is not required — if you meet the threshold, you are expected to pay even without a reminder.
If you start earning significant self-employment income mid-year, you may not owe installments until the following year (since the two-year threshold test looks back at prior years). However, you should still set aside money throughout the year to pay your balance at filing time.
Yes. There is no penalty for overpaying. The excess is simply refunded when you file your return. Some taxpayers deliberately overpay slightly to ensure they receive a refund rather than owing a balance.