The Canada Revenue Agency (CRA) requires individuals who earn income with no tax withheld or insufficient tax withheld to make income tax payments in instalments throughout the year.
If you are required to pay personal income tax instalments, the current high-interest rate environment means there is a considerable cost to making late or insufficient tax instalment payments. The interest portion of this cost is higher than current market rates of interest as the interest charged by the CRA is generally 4% more than current rates.
Before we look further at the impact of the recent interest rate hikes on your tax bill, let’s review the income tax instalment requirements and calculation options for individuals.
Individuals who are required to make income tax instalments are often those who earn income that is not subject to tax withholding at source, such as investment income, and those who are self-employed. More specifically, if your total tax liability, less the portion that was withheld at source, is greater than $3,000 ($1,800 for Quebec residents) for both the current year and either of the two preceding years, you must make instalments for the current year.
The good news is that CRA will make this determination and send you instalment reminders if you are required to make instalment payments. Revenu Québec follows a similar approach. If you receive a reminder, it’s important that you make the required instalments on time unless you are certain that your current year’s unpaid tax liability when you file your 2023 tax return will not exceed $3,000 ($1,800 for Quebec residents).
Instalment due dates
Where required, quarterly instalment payments are due on March 15, June 15, September 15 and December 15. The CRA sends out instalment reminders twice a year – the February reminder is for the March and June payments, and the August reminder is for the September and December payments.
If your main source of income is self-employment income from farming or fishing, and you’re required to make instalments, your payment is due on Dec. 31.
Where you’ve exceeded the $3,000 threshold in 2021 or 2022 and will exceed it again in 2023, you have three options to calculate your 2023 instalment payments: (1) the no-calculation option, (2) the prior year option, and (3) the current year option, as summarized below.