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Do I have to make tax instalment payments?

Last updated: Nov. 9, 2021 

If you’re an employee and your employment is your main source of income, there’s a good chance you won’t have to make quarterly instalment payments since your employer is required to withhold payroll deductions.

But if you earn income that doesn’t have tax withheld on it, like self-employment, rental or investment income, or you made a capital gain in the past year, you might have to make instalment payments.

Instalments usually arise if the tax you owe in the previous year is more than $3,000 (before existing instalment payments).

By making quarterly payments, you’re paying your taxes throughout the year, instead of paying a lump sum by the April 30 filing deadline.

Paying your instalment amounts can avoid costly or unnecessary interest to the Canada Revenue Agency.

How do I know I have to pay tax by instalments?

The CRA will look at your prior-year tax return and send instalment reminders to you – the reminder is based on prior returns. Your instalments will be due quarterly.

Quick Tips:

  • Your instalments will be due quarterly. The due dates are usually: March 15, June 15, September 15 and December 15.
  • The CRA will send you reminders when they’re due, but it’s still up to you to remember to pay them – otherwise you’ll face interest and penalties. You can find the amount you owe and the reminders online in your CRA My Account as an individual or as a business.
  • If you received an instalment reminder in 2021, but your 2021 net tax owing is $3,000 or less (all provinces excluding Quebec), you do not have to pay tax instalments for 2021.
  • If the instalment deadline falls on a weekend or holiday, the CRA considers it to be on time if it’s received by the next business day.
  • You can pay online on CRA My Account, through your financial institution or send the CRA a cheque as long as it’s postmarked by the instalment deadline. You can also choose to make pre-authorized payments.

Since your tax instalments are determined by the balance you owe on your tax return from the prior year, if your finances change and you end up making more money throughout the year and owing more tax, you’ll still have to pay that amount by April 30th of the following year.

Even if your business is cyclical and your income fluctuates greatly throughout the year, you are required to pay your instalments – just make sure you have enough money in the bank to make those payments.

Instalment payments for farming and fishing

If your main source of self-employment income is from farming or fishing, you only make one instalment payment – it’s due on December 31st if you owe more than $3,000 in tax.

You’ll receive an instalment reminder in November.

Featured Resource: Year-End Tax Planning Strategies for Your Farm: Download your Year-End Tax Planning Toolkit for Farms here

How do I calculate my instalment payments?

There are three methods you can use to calculate your instalment payments.

  1. No-calculation option – If your income, deductions, and credits are about the same from year to year, the CRA determines the amount of your instalment payments based on the information in your latest assessed tax return.
  2. Prior-year option – If your 2021 income, deductions and credits will be similar to the prior-year amount, but different from 2019, you can determine the instalment payments based on your tax return for 2020.
  3. Current-year option – If your 2021 income, deductions and credits will be different from those in 2020 and 2019, you can determine the payments based on the current year net tax owing.

Reduce income tax instalment payments

You can reduce (or eliminate) your instalment payments by having tax deducted from these sources, if applicable:

  • Old Age Security
  • Canada Pension Plan Benefits
  • Employment Insurance or pension benefits

The CRA has a chart to help you calculate instalment payments for 2021. Use this as a guide but we recommend speaking with a tax professional to ensure your calculations are accurate and that your opportunities to lower the amount of tax you owe have been optimized.

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About FBC

FBC was founded on the belief that Canadians should receive every benefit of filing their taxes. Three-generations later, our family-owned business continues to support farmers, truckers, trades and other small businesses minimize their taxes, simplify their books, and pay their employees.

Take 15-minutes to connect with us.  Let’s see if we’re a good fit for you and your business. Book online or call us at 1-800-265-1002

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