Quarterly Tax Instalments in Canada: How They Work and How to Calculate Them

If you're a sole proprietor, freelancer, or incorporated business owner who expects to owe more than $3,000 in federal income tax this year (and owed that amount in either of the two previous years), the CRA requires you to make quarterly tax instalments.

This isn't optional. Miss them and you'll owe interest. This guide explains how instalments work, the three calculation methods, and what to do if you can't pay.

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Why Instalments Exist

Employees have income tax deducted at source with every paycheque. Self-employed Canadians and business owners don't have an employer withholding tax on their behalf — so the CRA requires you to pay throughout the year instead of in one lump sum at filing time.

The threshold: if you owe more than $3,000 in net federal tax (after credits) in the current year and in either of the two previous years, you must make instalments.

Note: For residents of Quebec, the provincial threshold is separately administered by Revenu Québec. The combined federal + provincial threshold is effectively $1,800 for each.

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2026 Instalment Due Dates

| Instalment | Due Date | |------------|---------| | Q1 | March 15, 2026 | | Q2 | June 15, 2026 | | Q3 | September 15, 2026 | | Q4 | December 15, 2026 |

The CRA mails instalment reminders in February (for March and June) and in August (for September and December). If you don't receive a reminder, that doesn't exempt you from making payments if you meet the threshold.

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The Three Calculation Methods

You can calculate your instalments using any of three CRA-approved methods. The goal is to minimize interest — you only pay instalment interest if the method you chose results in underpayment.

Method 1: No-Calculation Option (Safest)

Pay exactly the amounts on the CRA's instalment reminders. These are pre-calculated based on your prior-year returns.

• Easiest: Just pay what the CRA says
• No interest risk: If you pay the exact amounts stated, the CRA cannot charge instalment interest even if you end up owing more at filing time
• Downside: May overpay during lean years

This method is the default recommendation if you're not sure what you'll owe.

Method 2: Prior-Year Method

Base each instalment on your prior year's net tax owing, divided equally across four payments.

If you owed $12,000 in net tax for 2025, each 2026 instalment would be $3,000.

• Simple to calculate
• Interest risk: If your 2026 income is significantly higher than 2025, you may underpay and owe interest on the difference

Method 3: Current-Year Method

Estimate what you'll owe for the current year based on expected income, then divide by 4.

• Most accurate if your income is consistent or you expect a lower income year
• Highest risk: If you underestimate, you'll owe instalment interest on the shortfall
• Best used when your income drops significantly from the prior year

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How to Calculate Instalment Interest

If your instalments are too low, the CRA charges interest on the shortfall at the prescribed interest rate (typically 2–4 percentage points above base rate). For 2026, the prescribed rate is set quarterly — check the CRA website for current rates.

The key rule: if you use the no-calculation option and pay the exact amounts stated, you will not owe instalment interest regardless of your actual tax bill.

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What to Do If You Can't Pay

Missing an instalment is better than missing the payment entirely, but it does trigger interest. Here's the order of priority:

1. Pay what you can on the due date, even if it's not the full amount
2. Pay the remainder as soon as possible
3. If you're facing significant cash flow issues, contact the CRA proactively — they have payment arrangement programs

Never ignore a missed instalment hoping it resolves itself. The interest compounds, and the CRA will apply late penalties.

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Corporations and Instalments

Incorporated businesses (T2 filers) also make monthly corporate tax instalments throughout the year. For Canadian-Controlled Private Corporations (CCPCs) with taxable income under $500,000:

• Monthly instalments due on the last day of each month
• Equal to 1/12 of the estimated current-year corporate tax
• Balance due within 2-3 months of fiscal year-end (depending on CCPC status)

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Planning Around Instalments

Track your income quarterly. If you know mid-year that your income will be significantly higher than last year, increase your instalments proactively. This avoids a large balance owing at filing time and prevents interest.

Use your bookkeeping software. Your Q1, Q2, Q3 P&L reports give you a clear picture of where the year is tracking. If you're up 40% over last year by September, your Q4 instalment should reflect that.

Set aside a tax reserve. Many self-employed Canadians set aside 25–35% of net income into a separate savings account earmarked for taxes. This prevents the painful experience of owing more than you have available at filing time.

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The Bottom Line

Quarterly tax instalments aren't punitive — they're just a cash flow management mechanism for business owners without employer withholding. The no-calculation method is foolproof if you're unsure; just pay what the CRA's reminders say.

For a full overview of all your CRA obligations, see our Canadian small business tax guide and our CRA deadlines calendar for 2026.

Bookkeeper's financial reports show you exactly where you stand mid-year so you can estimate your tax liability before instalment deadlines. Start free.