If your total tax liability, less the portion that was withheld at source, is greater than $3,000 for both the current year and either of the two preceding years, you must make instalments for the current year. In Québec where provincial tax is collected by the province, the threshold is $1,800 for both federal and provincial tax. Note that the Canada Revenue Agency (CRA) collects provincial tax in other provinces under the tax on income system.
With such low thresholds, it’s easy to see that even individuals with only moderate amounts of income may be caught by the rules. A middle-income taxpayer with $10,000 of interest income could be required to pay tax by instalment. Fortunately, you don’t have to check this test yourself.
The CRA determines who’s required to pay instalments from prior years' tax returns and sends instalment reminders to these taxpayers. There are two important points to note about this system.
First, you only have to make instalment payments if the CRA sends you an instalment reminder. If you don't receive one, you don't have to make instalments, even if your tax liability clearly exceeds the $3,000 limit.
Second, if you do receive a reminder, remember that it's based on past information. If you're certain that your current year's unpaid tax liability when you file your return will not exceed $3,000, then you're not required to make instalments and you can ignore the reminder notices. A similar system applies in Québec.
Where required, instalment payments are due quarterly, on the 15th day of March, June, September, and December. The CRA sends out the instalment reminders twice a year, in February for the March and June payments, and in August for the September and December payments. These notices are also available in the CRA My Account online service.
The instalments must either be received by the CRA, or sent by first class mail by these dates, for them to be considered paid on time. Note that Québec does not follow the federal rules with respect to when instalment payments are considered to have been paid. For Québec tax purposes, instalment remittances made by mail are not considered paid until the payment is received by the Québec government.
You can also make payments online using CRA My Payment, use a third-party service provider that offers payment by credit card, debit card, PayPal, or Interac e transfer, use your financial institution’s online banking service to pay instalments in a manner similar to the manner you pay other bills, use pre-authorized debit or make a payment in person at any financial institution or Canada Post location by the due date. It is important that the payment be received by the CRA by the due date. Some payments from financial institutions are not considered paid until the business day following the date of payment – you will need to check with your financial institution to ensure payment by the due date.
The rules are different if your main source of income is self-employment income from farming or fishing. In particular, you’ll be required to make a single instalment payment on December 31, 2024, if in each of 2024, 2023 and 2022 your net tax owing is more than $3,000 ($1,800 if you live in Québec). The CRA will send you a notice in November 2024. Similar rules apply in Québec.
In any case, your final tax liability for a year is determined when you file your tax return and any balance of tax owing over and above the instalments must be paid by April 30th of the following year.
Where instalments have to be paid quarterly, cash-flow problems may arise if you ordinarily receive your income late in the year. For example, you may regularly realize accrued capital gains in November. If this is a regular pattern for you, you will still need to pay instalments throughout the year, even though your income is earned mostly at the end of the year. This may create a cash-flow problem for quarterly instalments due in March, June, and September (before the capital gains are realized).
If this is your situation, plan ahead to ensure you have sufficient funds on hand to meet your instalment obligations.