Every year, thousands of Canadians are caught off guard by a letter from the CRA asking them to start making quarterly tax payments. For many, it’s the first time they’ve heard the term “tax instalment” — and the letter arrives with a dollar amount and a deadline that have already passed.
If that sounds familiar, or if you’re self-employed, a landlord, a retiree, or an investor, this article is worth your time. The December 15 instalment deadline is eleven weeks away, and understanding your obligations now — rather than in April — can save you real money in interest and penalties.
What Is a Tax Instalment?
Canada’s income tax system is built around pay-as-you-go. For employees, this works automatically: your employer deducts income tax from each paycheque and remits it to the CRA on your behalf. By the time you file in April, most of what you owe has already been paid.
But for Canadians whose income isn’t fully subject to source deductions — the self-employed, landlords, investors, retirees drawing RRIF income, or anyone with significant investment income — tax accumulates throughout the year with nothing being withheld. The instalment system addresses this by requiring those taxpayers to make quarterly pre-payments toward their anticipated tax bill, rather than settling the entire balance in one lump sum when they file.
Think of instalments as paying your tax in real time, as you earn. They don’t create an additional tax liability — you’re simply prepaying what you would owe anyway.
Who Has to Pay?
The CRA requires you to pay income tax by instalments for 2026 if both of the following conditions apply:
- Your net tax owing for 2026 exceeds $3,000 (or $1,800 if you live in Quebec)
- Your net tax owing also exceeded that threshold in either 2024 or 2025
“Net tax owing” means the difference between your total tax payable for the year and the amount already withheld at source through employment income, pension deductions, or other means.
The two-condition rule is important. A single unusual year of high income — a one-time capital gain, for example — does not automatically lock you into instalments. Both the current year and at least one of the two prior years must exceed the threshold for the obligation to apply.
Common situations that trigger the requirement include:
- Self-employed individuals (sole proprietors, freelancers, consultants) with no employer withholding tax
- Rental property owners with net rental income
- Retirees receiving CPP, OAS, and RRIF income without sufficient tax withheld at source
- Investors with significant interest income, dividends, or capital gains in non-registered accounts
- Individuals with income from multiple jobs where combined withholding is insufficient
- Anyone who received a large, unexpected income event in a prior year that’s expected to continue
One point worth emphasizing: receiving an instalment reminder from the CRA does not mean you’re under audit or that you’ve done anything wrong. It simply means the CRA’s system has flagged that you likely owe more tax than will be withheld from your income — and it’s giving you a structured way to pay it.
When Are Payments Due?
For most individuals, tax instalments are due quarterly on the following dates in 2026:
- March 15
- June 15
- September 15
- December 15
When a due date falls on a weekend or public holiday, the CRA considers a payment received on the next business day to be on time.
The CRA sends instalment reminders (Form INNS1) twice a year: once in February covering the March and June payments, and once in August covering the September and December payments. These reminders are not bills — they’re prompts. You are not required to pay the exact amounts shown on the reminder, and there are three recognized methods for calculating your payments (more on that below).
Farmers and fishers whose primary income source is farming or fishing operate under different rules: they make a single annual instalment due December 31.
How Do You Calculate What to Pay?
The CRA offers three recognized methods for calculating instalment payments, and you are free to use whichever results in the lowest correct payment. Here’s how each works:
Option 1: No-Calculation (CRA Reminder Amount)
The simplest option. You pay the amounts shown on your instalment reminder, as calculated by the CRA based on your prior year tax returns. No math required on your part.
The key advantage: this is the only option that is completely interest-safe. If you pay the reminder amounts on time, the CRA cannot charge instalment interest — even if your actual 2026 tax turns out to be higher than what you paid. This method is best suited to taxpayers whose income is relatively stable from year to year.
Option 2: Prior-Year Option
You calculate your instalment payments based on your actual net tax owing from your 2025 tax return, divided into four equal quarterly payments. Like the no-calculation option, paying these amounts in full by each due date protects you from instalment interest, regardless of how the current year plays out.
This option is useful when your 2026 income is similar to 2025, but the CRA’s reminder amounts are based on an older year that doesn’t reflect your situation accurately.
Option 3: Current-Year Option
You estimate your 2026 net tax owing and divide that estimate into four equal quarterly payments. This can significantly reduce your instalment amounts if your income has fallen materially compared to prior years — perhaps due to reduced business activity, a drop in investment income, or a transition to retirement.
The risk: if your estimate is too low and your actual 2026 tax exceeds it, the CRA will charge instalment interest on the shortfall. Use this option only when you have a well-founded, conservative estimate of your current-year income and are confident it represents a genuine decrease from prior years.
The practical takeaway: if your income is stable or increasing, stick with the no-calculation or prior-year option to avoid interest exposure. If your income has clearly fallen this year, the current-year option can free up cash — but have the math to support it.
What Happens If You Don’t Pay?
This is where many taxpayers underestimate the consequences. Failing to make instalment payments, or making payments that are late or insufficient, triggers two potential charges:
Instalment Interest
The CRA charges interest on any late or insufficient instalment payments, compounded daily at the CRA’s prescribed rate. This rate is reviewed quarterly and it applies from the date each payment was due until your balance due date of April 30, 2027.
Importantly, you cannot deduct instalment interest from your income. It is a pure, non-recoverable cost.
One partial offset the CRA does allow: if you made early or larger payments in other quarters, the CRA credits that overpayment when calculating your interest charges. In other words, paying more than required in March or June can offset a shortfall in September or December.
Instalment Penalty
On top of interest, the CRA may also assess an instalment penalty if your instalment interest charges for 2026 exceed $1,000. The penalty is calculated as the greater of:
- $1,000, or
- 25% of the instalment interest that would have been charged if no payments had been made at all
…minus your actual instalment interest charges, divided by two.
In practice, this penalty kicks in when the gap between what you paid and what you should have paid is significant. For taxpayers who owe substantial tax and make no instalments at all, the combined interest and penalty exposure can be material.
How to Pay
If you owe instalments, the CRA offers several convenient payment methods:
- CRA My Payment (online via banking debit card)
- Pre-authorized debit (PAD) through CRA My Account — you can set up payments in advance for all four due dates at once
- Online banking — most major Canadian banks list the CRA as a payee under “CRA Personal Income Tax”
- Cheque or money order mailed with your instalment remittance slip
For the December 15 payment specifically, mailed cheques should be sent well in advance to ensure they arrive on time. Processing delays over the holiday season are common.
Strategies to Reduce or Eliminate Your Instalment Obligation
If you’d prefer not to pay instalments — or want to reduce the amounts — there are a few legitimate options:
Request additional withholding at source: If you also have employment income or receive a pension with tax withheld, you can ask your employer or pension administrator to deduct more tax from each payment. If the increased withholding covers your additional tax liability, you may be able to reduce or eliminate your instalment obligation entirely.
Make RRSP contributions: A deductible RRSP contribution reduces your net income and therefore your net tax owing. If a contribution brings your net tax owing below the $3,000 threshold, the instalment requirement may no longer apply for the year. Note that RRSP contributions for the 2026 tax year are due by March 1, 2027.
Time income strategically: If you have control over when you invoice clients or realize investment income, timing these to earlier in the year gives your withholdings more time to accumulate — though this is more of a forward-planning tool than an immediate fix.
A Note for Incorporated Business Owners
For corporations, instalment rules differ meaningfully from those that apply to individuals. Most corporations are required to pay tax by monthly instalments, though eligible Canadian-Controlled Private Corporations (CCPCs) with a strong compliance history and taxable income below specified thresholds may qualify for quarterly instalments instead.
If you run a corporation and aren’t sure whether monthly or quarterly instalments apply to your situation, this is worth clarifying with your accountant — the difference in cash flow management can be significant.
The Bottom Line
The December 15 instalment deadline is eleven weeks away, and September 15 has just passed. If you’re unsure whether you should have been making payments this year — or whether you’ve been paying the right amounts — now is the time to review your situation.
The consequences of getting this wrong are straightforward and avoidable: daily compound interest, a potential penalty on top, and a larger balance owing in April. None of these are catastrophic on their own, but they are entirely unnecessary with a bit of proactive planning.
If you’ve received an instalment reminder and you’re not sure what it means, or if your income has changed significantly this year and you want to revisit your instalment amounts before December 15, we’re happy to help you work through the numbers.
This article is intended for general informational purposes and does not constitute professional tax advice. Tax rules are subject to change. Please consult a qualified CPA for guidance specific to your circumstances.
Photo by Julio Lopez on Unsplash
