Guide to CRA Installment Payments: How to Pay Taxes by
By WelcomeAide Team
If you're a newcomer to Canada who has started earning self-employment income, investment income, or other income where taxes aren't withheld at source, you may be required to pay your income tax in quarterly instalments rather than in one lump sum at tax time. This guide explains everything you need to know about CRA installment payments.
What Are Tax Installment Payments?
Quick tip: download the official TD1 first, then fill it while following this guide: Download TD1 form (official CRA).
Tax installment payments are periodic advance payments of income tax that you make throughout the year. Instead of paying your entire tax bill when you file your return in April, you pay portions of your estimated tax liability on specific due dates. This system ensures the government receives a steady flow of tax revenue and prevents taxpayers from facing an unmanageable lump-sum payment.
See also: First-Year Tax Filing Guide
The CRA requires installment payments when your net tax owing exceeds $3,000 in the current year and in either of the two preceding years. For Quebec residents, the threshold is $1,800 for federal purposes, as provincial tax is handled separately by Revenu Québec.
Who Needs to Pay by Instalments?
You likely need to make installment payments if you:
- Are self-employed or a freelancer with no tax withheld at source
- Earn significant rental income
- Have investment income (dividends, capital gains, interest) that generates substantial tax
- Receive pension income without adequate tax withheld
- Have multiple sources of income where combined withholdings are insufficient
As a newcomer, you may encounter this requirement sooner than expected if you start a small business or begin investing. The CRA will send you an instalment reminder (Form INNS1 or INNS2) if they determine you should be making payments, but it's your responsibility to pay even if you don't receive a reminder.
Installment Due Dates
For individuals, quarterly installment payments are due on:
- March 15 - First quarter payment
- June 15 - Second quarter payment
- September 15 - Third quarter payment
- December 15 - Fourth quarter payment
If a due date falls on a weekend or statutory holiday, the payment is due on the next business day. Late payments are subject to instalment interest, which compounds daily at the CRA's prescribed rate.
Three Methods to Calculate Installment Amounts
The CRA allows you to use one of three methods to determine how much to pay each quarter. Each method has advantages depending on your situation:
Method 1: No-Calculation Option (CRA Suggestion)
The simplest approach is to follow the amounts the CRA suggests on your instalment reminder. The CRA calculates these amounts based on your previous tax returns. For the March and June payments, the CRA uses your tax data from two years prior. For September and December, they adjust based on last year's return minus what you already paid.
This method requires no calculations on your part and protects you from instalment interest charges, even if the amounts end up being slightly different from your actual tax owing.
Method 2: Prior-Year Option
With this method, you base all four quarterly payments on your estimated net tax owing for the previous tax year, divided by four. This works well if your income is fairly stable from year to year.
For example, if your net tax owing last year was $8,000, you would pay $2,000 each quarter.
Method 3: Current-Year Option
You estimate your current year's net tax owing and divide by four equal payments. This method can result in lower payments if your income has decreased, but carries the risk of instalment interest if you underestimate your tax liability.
For newcomers in their first full year of earning Canadian income, this may be the most practical approach since you may not have two years of Canadian tax history for the other methods.
How to Make Installment Payments
The CRA offers several convenient payment methods:
Online Banking
Most major Canadian banks and credit unions allow you to pay CRA instalments through their online bill payment service. Search for "CRA - Tax Instalments" as the payee and use your Social Insurance Number (SIN) as the account number. Payments typically take 3-5 business days to process.
See also: How to Get Your SIN Number in Canada
CRA My Payment Service
The CRA My Payment portal allows you to pay directly using your Visa Debit or Interac Online. The payment is processed immediately, making it ideal for last-minute payments.
Pre-Authorized Debit (PAD)
You can set up automatic withdrawals from your bank account through CRA My Account. This ensures you never miss a payment date. You can choose fixed amounts on specific dates or align with the quarterly due dates.
See also: Banking in Canada for Newcomers
See also: CRA My Account Setup Guide
At Your Financial Institution
You can pay in person at your bank using the remittance voucher from your instalment reminder. Some institutions also accept payments at their ATMs.
By Mail
Send a cheque or money order payable to the Receiver General for Canada along with the remittance portion of your instalment reminder. Mail payments well before the due date to account for delivery time.
Understanding Instalment Interest and Penalties
If you miss an installment payment or pay less than required, the CRA charges instalment interest. The interest rate is the CRA's prescribed rate, which changes quarterly and is based on the Government of Canada Treasury bill rate plus 2%.
Instalment interest is calculated on the difference between what you should have paid and what you actually paid, compounded daily from the due date until the payment is received or until April 30 of the following year (whichever comes first).
If your instalment interest exceeds $1,000, you may also face a penalty equal to 50% of the instalment interest that exceeds the greater of $1,000 or 25% of the instalment interest you would have owed if you made no payments at all.
Instalment Credits and Offsets
If you overpay an instalment, the excess generates an instalment credit that offsets interest on late or insufficient payments in other quarters of the same year. This means that if you paid extra in March but were short in September, the overpayment helps reduce or eliminate the interest charge for the late September payment.
Tips for Newcomers Managing Installment Payments
- Set up a savings account: Create a dedicated savings account and transfer a portion of each payment you receive for taxes. This ensures you have funds available when installment payments are due.
- Use the CRA's online tools: Log in to CRA My Account to view your installment reminders, payment history, and account balance.
- Consider voluntary withholding: If you have employment income in addition to other income, you can ask your employer to withhold additional tax from your paycheque using Form TD1. This can reduce or eliminate the need for installment payments.
- Track all payments: Keep records of every installment payment including confirmation numbers, dates, and amounts.
- Review annually: As your income changes, review whether your installment amounts are still appropriate and adjust accordingly.
What Happens If Your Situation Changes?
Life as a newcomer is often unpredictable. If your income changes significantly during the year—perhaps you find employment after a period of self-employment, or your business income increases substantially—you should adjust your instalment payments accordingly.
If you switch from self-employment to full-time employment where tax is withheld at source, you may no longer need to make installment payments. However, you should still check whether any withholding gap exists that would require additional payments.
Filing Your Tax Return with Instalment Payments
When you file your annual tax return, your installment payments are credited against your total tax owing on line 47600 of your T1 return. If your total payments (including tax withheld at source and installment payments) exceed your tax liability, you'll receive a refund. If they fall short, you'll owe the remaining balance.
Additional Resources
- CRA - Income Tax Instalments
- CRA - Paying Your Instalments
- CRA - Interest and Penalty Charges on Instalments
Quarterly installment payments are an important responsibility for newcomers who earn income without tax withheld at source. By understanding the calculation methods, payment options, and deadlines, you can stay compliant with the CRA and avoid unnecessary interest charges. Start early, automate where possible, and keep thorough records of all payments.
Download This Form
Before you submit anything, download the latest official file here: Download TD1 form (official CRA). Always use the latest version.
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- WelcomeAide Blog — browse all newcomer guides and updates
- Tax Guide — understand taxes, filing deadlines, and common credits
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- Cost Calculator — estimate monthly living costs in Canada
- Benefits Guide — find federal and provincial financial supports
- OINP Human Capital Priorities Stream: Who Qualifies and How to Apply
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