Understanding Tax & HST Instalments in Canada
If you’ve ever received a letter from the Canada Revenue Agency (CRA) that says something like “Send us money by March/June/September/December 15th”, even though you haven’t filed your taxes yet — you’re not alone.
It catches people off guard every year. The letter looks serious. There’s no explanation. Just a dollar amount and a deadline.
But it’s not a scam, and it’s not a fine.
It’s the CRA asking you to make tax instalments — essentially pre-paying your taxes for the current year based on what you owed last year. There’s also a second layer for business owners and freelancers: HST instalments, which are a completely separate thing with their own schedule.
Most people either don’t understand the system or miss the letter entirely — and then they get charged interest, even if they end up paying their full taxes at tax time.
Here’s how it works — and how to avoid getting dinged.
What Are Tax Instalments?
Instalments are pre-payments toward your income taxes for the current year.
They’re usually required if your taxes aren’t being withheld automatically from a paycheque — which is common if you’re:
- Self-employed
- Earning rental income
- Getting significant investment income
- Retired and relying on RRIF withdrawals, CPP, and OAS with no/low tax withholding
- Running a side hustle or freelance gig
If you owed more than $3,000 in income tax last year and the year before, the CRA assumes you’ll owe again this year. So instead of waiting until next April, they want you to send in four instalments across the year.
The goal is to make sure people aren’t underpaying through the year.
But they don’t exactly explain that in their letter — which is why so many people ignore it and end up paying more later.
When Are You Required to Pay?
CRA’s general rule:
If your net tax owing was more than $3,000 in both of the last two years, you’re now on the hook to pay instalments for this year.
The key word is net — that’s what you owed after credits and deductions were applied, not your gross income.
This includes personal tax from:
- Self-employment
- Rental properties
- RRIFs, pensions, or other retirement income
- Investment income (interest, dividends, capital gains)
It also applies if your taxes were underpaid through payroll — say you had a new job without proper deductions, or switched to contract work.
CRA doesn’t care how you got there — if you didn’t pay enough during the year, they want you to catch up in advance this time.
When and How Much Do You Have to Pay?
CRA sends out instalment reminder letters twice a year — usually in February and August — with suggested payment amounts and dates.
You have three ways to calculate what you pay:
- No-Calculation Option: Just pay what CRA tells you in the reminder
- Prior-Year Option: Base it off your last return
- Current-Year Option: Estimate what you’ll owe this year (risky if your guess is off)
The quarterly payment deadlines are always the same:
📅 March 15
📅 June 15
📅 September 15
📅 December 15
If you underpay or miss a payment, even by a little, CRA adds daily interest from the missed due date — regardless of whether you pay your full balance at tax time.
It’s not a penalty in the traditional sense — but it still hits your wallet.
What About HST Instalments?
Separate from income tax instalments, some businesses also need to make HST instalments.
Here’s how it works:
- If you file quarterly HST returns AND
- You owed more than $3,000 in HST last year…
…then CRA expects you to prepay your HST every quarter this year, too.
A lot of small business owners and contractors miss this part completely. They assume they can deal with HST all at once at year-end — but CRA’s already factored in what you should be remitting and wants you to break it up over four payments.
So yes — you could be making both:
- Income tax instalments, and
- HST instalments
They’re tracked separately, paid separately, and not interchangeable.
What Happens If You Ignore the Letter?
This is where most people get burned.
Let’s say CRA sends you a letter in February asking for four $1,000 payments across the year.
You ignore it.
You file your taxes in April and pay the full $4,000 you owe.
You think you’re fine. But CRA adds instalment interest to your account — because you didn’t pay on their schedule.
The interest isn’t based on your final balance — it’s based on when you paid.
They assume you should’ve paid 25% of your total tax bill by each quarterly date. If you didn’t, you’re charged interest on the shortfall from that date forward.
They don’t care if you didn’t open the letter. They don’t care if you “didn’t know.” They sent it. That’s enough for them.
How to Stay Ahead of CRA Instalments
Instalments don’t have to be painful — if you know what to watch for.
Here’s how to stay on top of it:
✅ Log into CRA MyAccount — Instalment reminders show up under “Mail” even if you never get them physically.
✅ Set calendar reminders for March 15, June 15, Sept 15, and Dec 15.
✅ Talk to your accountant — especially if your income varies year to year.
✅ Use the Current-Year Option carefully if your income is lower this year — but document your math in case CRA questions it.
You can also set up pre-authorized debit in CRA’s online portal so you don’t forget.
Visual Aids to Include in Blog (Optional)
- ✅ Graphic: “Who Needs to Pay Instalments?” Checklist
- 📨 Mock CRA Instalment Reminder Letter
- 📅 Instalment Calendar with Due Dates
- 🔁 Flowchart: What Happens If You Ignore CRA Letters
Let me know if you’d like these visuals in branded image format — I can export them for direct use in your blog or social posts.
Final Thought
CRA instalments are one of the most misunderstood parts of Canadian tax — especially for self-employed folks, landlords, and retirees.
They’re not a penalty. They’re not a punishment.
But if you ignore them, you’ll pay the price anyway — in interest charges and unnecessary stress.
Need help figuring out if you’re supposed to be making instalments?
Talk to a tax pro early – hint hint – The TaxForce! A five-minute review could save you hundreds in CRA interest.
