Tax instalments are prepayments toward income tax the CRA does not collect through payroll withholding. You are required to pay them if your net tax owing is more than $3,000 — $1,800 in Quebec — in the current year and in either of the two previous years. Payments are due 15 March, 15 June, 15 September and 15 December. The amount on your instalment reminder is only one of three ways to calculate what you owe, and choosing the right one is where the money is.
Table of contents
- What are tax instalments, and why did the CRA send me a reminder?
- Do you actually have to pay? The $3,000 test
- The four due dates (and why September 15 is the one that matters right now)
- The three ways to calculate what you owe
- What it costs if you underpay: instalment interest
- The separate instalment penalty most people have never heard of
- What to do before September 15
- We field these instalment reminders every August
- Frequently asked questions
What are tax instalments, and why did the CRA send me a reminder?
An instalment is a periodic prepayment toward income tax that isn’t collected for you automatically, per the Canada Revenue Agency’s (CRA) own guidance on required tax instalments for individuals. If you’re an employee, your employer withholds tax from every paycheque and remits it to the CRA on your behalf, so by the time you file your return most of the bill is already paid. Instalments exist for everyone else — anyone whose income isn’t fully covered by source withholding.
Why instalments exist: withholding for employees, quarterly payments for everyone else
Payroll withholding is built for one kind of income: salary. It has nothing to say about self-employment earnings, rental income, investment income, or a large one-time gain — none of which has an employer standing between you and the CRA to deduct tax before you ever see the money. Instalments are the CRA’s mechanism for collecting tax on that income throughout the year instead of in one lump sum the following spring.
An instalment reminder is not an assessment, and not a bill
If a CRA instalment reminder landed in your mailbox or CRA My Account in August, it is easy to read it as a bill — a fixed amount you owe, full stop. It isn’t. It’s a suggested payment based on your past filing history, calculated under one of the three methods below, and you are allowed to pay a different, correctly calculated amount instead. Reading the reminder as an obligation to pay that exact number, rather than as one legitimate option among three, is the single most common misunderstanding on this page.
Do you actually have to pay? The $3,000 test
Per the CRA’s page on who has to pay, you have to pay personal tax instalments if your net tax owing is more than $3,000 — $1,800 if you live in Quebec — in the current year (2026) and in either 2025 or 2024. Both conditions must be true; a single high-tax year does not put you on instalments.
| Condition | Threshold |
|---|---|
| Net tax owing in 2026 | More than $3,000 ($1,800 in Quebec) |
| Net tax owing in 2025 or 2024 | Also more than $3,000 ($1,800 in Quebec) |
| Both conditions required | If either year falls at or under the threshold, you are not required to pay instalments |
What “net tax owing” means
Net tax owing, for this test, is the tax you’d otherwise pay on filing — after credits and deductions, but before subtracting amounts already withheld at source. It is not your total tax bill, and not “the cheque you wrote CRA in April.” Heavy payroll withholding can leave a large total tax bill but small net tax owing, never triggering instalments; almost nothing withheld can cross $3,000 easily on a modest income.
The two-year condition almost everyone drops
“You have to pay personal tax instalments to the CRA if your net tax owing is more than $3,000 — $1,800 if you live in Quebec — in the current year and in either of the two preceding years.” That second half is the part competitor content routinely leaves out: a taxpayer who owed $4,500 in 2026 but stayed under $3,000 in both 2025 and 2024 is not required to pay instalments, even though the current-year number alone looks like a clear “yes.”
Who typically lands here
In our Toronto, Markham and Richmond Hill practice, four profiles show up on instalments every year: the self-employed with no withholding at all; landlords with rental income; investors with dividend, interest or capital-gains income outside a registered account; and owner-managers who pay themselves through dividends. That last group is the single most common route onto instalments in the GTA — dividend income carries no withholding at all, so a full year’s tax on it accumulates untouched until the CRA catches up through instalments.
The four due dates (and why September 15 is the one that matters right now)
Personal tax instalments are due 15 March, 15 June, 15 September and 15 December each year, per the CRA’s payment due dates page.
| Instalment | Due date |
|---|---|
| First quarter | March 15 |
| Second quarter | June 15 |
| Third quarter | September 15 |
| Fourth quarter | December 15 |
Weekend and holiday rule
If a due date falls on a Saturday, Sunday or a public holiday the CRA recognizes, a payment made on the next business day is considered on time.
The 75/25 split when your first reminder is the September one
Not every instalment payer gets a reminder for all four dates. If your first reminder of the year arrives for September — because your March and June obligations weren’t yet apparent to the CRA, or because this is your first year on instalments — the CRA structures it so 75% is due September 15 and the remaining 25% is due December 15, under the prior-year and current-year calculation options. If an August reminder just arrived asking for what looks like an unusually large September payment, this split is very often why.
The three ways to calculate what you owe
The amount on your instalment reminder is one option, not the only one. The CRA’s page on options to calculate sets out three ways to work out what you actually owe, and picking the right one is where a taxpayer with a genuinely changed year saves real money — or avoids overpaying interest-free money to the government for months.
No-calculation option
Pay exactly what the CRA’s reminder tells you to pay, for each instalment date — no calculation required on your part. Pay this amount in full and on time, and the CRA will not charge instalment interest, even if it later turns out you owed more for the year. The safest option for anyone whose income is stable or rising.
Prior-year option
Base your instalments on your 2025 net tax owing, plus any Canada Pension Plan (CPP) contributions payable and voluntary Employment Insurance (EI) premiums payable for the year. This suits a taxpayer whose 2026 income looks similar to 2025’s, when the reminder amount (based on an even older year) doesn’t reflect a recent change.
Current-year option
Estimate your 2026 net tax owing directly, plus CPP and voluntary EI payable, and pay instalments based on that estimate. The right option when your income has genuinely dropped this year — a business slowdown, a retirement, a large one-time gain that’s ended — because it’s the only option that lets you pay less than the reminder without simply guessing. It also carries the most risk: if you estimate too low, the CRA charges instalment interest on the shortfall.
| Situation | Best option |
|---|---|
| Income about the same as last year, or rising | No-calculation — pay the reminder, guaranteed no interest |
| Income similar to 2025 but the reminder looks stale | Prior-year — base it on 2025’s actual net tax owing |
| Income has genuinely dropped this year | Current-year — estimate 2026 directly, understanding the risk of guessing low |
CRA’s own calculation chart for instalment payments walks through the arithmetic for each option in detail if you want to work the numbers yourself.
What it costs if you underpay: instalment interest
Underpaying — or not paying at all — doesn’t trigger a penalty automatically. It triggers instalment interest, calculated on the gap between what you should have paid and what you actually paid.
How CRA calculates it: the A-minus-B method
Per the CRA’s page on interest and penalty charges, the CRA compares two figures for each instalment: (A) the interest that would have accrued on the instalment you should have paid, from its due date to your balance-due date, and (B) the interest that actually accrued on what you did pay (or from January 1, whichever is later) to the balance-due date. The charge is A minus B, and the CRA applies whichever of the three calculation options produces the least interest for you. Instalment interest is charged only where this A-minus-B calculation produces a positive amount.
The rate: 7% for the third quarter of 2026
“The CRA charges instalment interest at the prescribed rate on overdue taxes, compounded daily — 7% for the third quarter of 2026,” per the CRA’s own interest rates for the third quarter page. This is the rate on overdue taxes specifically; the same quarterly table sets several other prescribed rates for different purposes, and the overdue-taxes rate is the one that applies here. The rate resets every quarter — the fourth-quarter 2026 rate begins October 1 and had not been published at the time of writing — so confirm the current quarter’s rate before relying on a number from an older article, including this one after its next refresh.
Offsetting: paying early or extra earns credit interest
The A-minus-B method cuts both ways: pay an instalment early or overpay one, and the CRA credits interest on the surplus, which can offset interest owing on a later instalment that fell short. Plan across the full year, not date by date, to make this work in your favour.
The separate instalment penalty most people have never heard of
Instalment interest and the instalment penalty are two different charges, and almost no competitor content mentions the second one at all.
It only applies once instalment interest exceeds $1,000
The instalment penalty is a separate charge under the Income Tax Act’s instalment rules, set out on the same CRA interest and penalty charges page, and it applies only if your instalment interest for the year is more than $1,000. A taxpayer who underpays modestly and accumulates, say, $400 of instalment interest owes that interest and nothing more — the penalty simply does not activate below the $1,000 line.
The formula, worked in plain English
Where instalment interest does exceed $1,000, the CRA calculates the penalty as follows: take the greater of $1,000 or 25% of the instalment interest you would have owed if you’d made no instalment payments at all for the year. Subtract that figure from your actual instalment interest for the year. Divide what’s left by two. That result is the penalty.
| Step | Calculation |
|---|---|
| 1. Find the larger of two figures | $1,000, or 25% of hypothetical no-payment interest |
| 2. Subtract from actual instalment interest | Actual interest − the larger figure from step 1 |
| 3. Halve the result | Step 2 result ÷ 2 = the penalty |
Worked example on a realistic GTA number
Say a Richmond Hill taxpayer with growing rental and dividend income underpaid all four 2026 instalments and accumulated $1,600 of instalment interest for the year. Hypothetical no-payment interest (had nothing been paid toward instalments at all) would have been $2,400; 25% of that is $600 — smaller than $1,000, so the larger figure is $1,000. Subtracting: $1,600 − $1,000 = $600. Halved: $300 penalty, on top of the $1,600 already owing in interest. The penalty stays secondary to the interest in most cases, but it lands exactly where a taxpayer who’s ignored reminders for a full year tends to be.
What to do before September 15
- Check whether you’re actually required to pay. Confirm net tax owing exceeded $3,000 ($1,800 in Quebec) in 2026 and in either 2025 or 2024. If not, you may not need to act at all, whatever the reminder says.
- Decide which of the three calculation options fits your year. Income flat or rising: pay the reminder. Income similar to 2025 but the reminder looks off: use the prior-year figure. Income genuinely down: estimate 2026 directly, understanding the risk if the estimate proves too low.
- If your first reminder this year is the September one, confirm the 75/25 split applies to your payment rather than treating the full reminder amount as a single instalment.
- Pay by September 15, or the next business day if the 15th falls on a weekend or holiday — see the CRA’s how to pay page for accepted payment methods.
- If you’ve already missed March and June, pay September in full to stop new interest accruing, and get the prior shortfall reconciled before it compounds further.
- Book time with a CPA before the deadline, not after, if your income changed enough this year that the right option isn’t obvious. Instalments paid during the year are later credited against your balance via line 47600 of your return, so accurate records now save reconciliation work later.
We field these instalment reminders every August
Owner-managers in Markham and Richmond Hill drawing dividends, and Toronto professionals with rental or investment income, are the two profiles we see most often on instalments — and both routinely call us holding an August reminder they’re not sure how to read. Triple M Professional Corporation (TMP Corp) works with individuals across Toronto, Markham and Richmond Hill to confirm whether instalments actually apply, choose the right calculation option, and get ahead of September 15 before interest starts compounding.
Already behind on March or June? See what late filing and late payment cost, or, if a letter has arrived, what to do about a CRA review letter. Dividends the reason you’re on instalments? Read salary versus dividends before next year’s reminder arrives. A capital gain pushed you over the threshold? See capital gains tax in Canada. Billing a single client through your own corporation? See personal services business status, a related trap for the same profile.
Want a payment calendar so instalments stop being a quarterly surprise? Our virtual CFO service does that. Already carrying interest or disputing a reminder? Our CRA representation service handles that directly. Corporations pay instalments under separate rules — see our Canadian corporate tax filing guide for the T2 side. Otherwise, book a free 30-minute call before September 15 and bring your reminder — we’ll tell you in ten minutes whether its number is the right one for you.
Frequently asked questions
Only if your net tax owing is more than $3,000 ($1,800 in Quebec) in the current year and in either of the two previous years. Both conditions must be true — a single high-tax year is not enough on its own.
March 15, June 15, September 15 and December 15. If the date falls on a weekend or public holiday, the next business day counts as on time.
No. It is one of three options — the “no-calculation” option. You can instead base your payments on your prior year’s net tax owing or on a current-year estimate, whichever suits your situation better.
If you were required to pay and didn’t, the CRA charges instalment interest on the shortfall, compounded daily. If that interest exceeds $1,000 for the year, a separate instalment penalty can also apply.
The prescribed rate on overdue taxes, compounded daily — 7% for the third quarter of 2026. The rate is reset quarterly, so always confirm the current quarter before relying on a figure.
A separate charge that applies only when instalment interest for the year exceeds $1,000. It’s calculated as the greater of $1,000 or 25% of what your interest would have been with no instalment payments at all, subtracted from your actual interest, then halved.
Yes — the current-year option lets you estimate 2026’s actual net tax owing rather than paying a reminder based on an older year. It carries a risk: if the estimate turns out too low, the CRA charges instalment interest on the shortfall.
When your first instalment reminder of the year is the September one, the CRA structures the prior-year and current-year options so that 75% is due September 15 and the remaining 25% is due December 15, rather than splitting the year’s obligation across all four dates.
Disclaimer: This article is general information, not personal tax advice. Whether you’re required to pay instalments, and which calculation option minimizes your interest exposure, depends on your specific two-year income history and current-year circumstances. Have a CPA review your actual numbers before choosing an option or relying on any figure above.