Tax instalments for self-employed Canadians: When and how to pay

Published Saturday 12 September 2026

Table of contents

• What are tax instalments?
• Do you need to pay tax instalments?
• When are tax instalments due?
• How to calculate your installment payments
• How to pay your tax instalments to the CRA
• What happens if you miss a payment?
• How to plan your cash flow for tax instalments
• Simplify your tax management with Xero
• FAQs on tax instalments for self-employed Canadians

Key takeaways

• If your net tax owing exceeds $3,000 in the current year and in one of the two prior years, you're required to pay quarterly tax instalments to the CRA.
• Installment payments are due on March 15, June 15, September 15, and December 15 each year.
• You can calculate your instalments using one of three methods: the CRA's no-calculation option, the prior-year option, or the current-year option.
• Missing or underpaying instalments can trigger daily interest charges at 7% per year, plus a penalty if interest exceeds $1,000.

What are tax instalments?

Tax instalments are periodic prepayments you make toward your annual income tax throughout the year, rather than paying everything in one lump sum at filing time. If you're self-employed in Canada, the Canada Revenue Agency (CRA) expects you to pay these instalments quarterly when your tax bill reaches a certain threshold.

The reason is straightforward. When you work as an employee, your employer withholds income tax from every paycheque and sends it to the CRA on your behalf. As a self-employed individual, no employer withholds tax on your behalf, so tax instalments spread your payments across four dates during the year instead of leaving you with a large balance owing in April.

These payments cover your federal and provincial income tax as well as your Canada Pension Plan (CPP) contributions on self-employment income.

How tax instalments differ from regular tax deductions

For employees, tax deductions happen automatically. Your employer calculates the right amount to withhold from each paycheque based on your income and sends it directly to the CRA. You don't need to think about it.

When you're self-employed, there's no automatic withholding. You're responsible for estimating how much tax you'll owe and sending payments to the CRA yourself. Instalments break that annual obligation into four manageable payments, so you're not caught off guard with a large bill when you file your return.

Do you need to pay tax instalments?

You're required to pay tax instalments if your net tax owing exceeds $3,000 in the current year and in either of the two preceding tax years. Net tax owing is the amount left after all your credits and deductions have been applied. If you live in Quebec, the threshold is lower at $1,800 for provincial tax, because Revenu Quebec administers provincial income tax separately.

The CRA doesn't leave you guessing. If you meet the threshold, they'll send you installment reminders, typically on forms labelled INNS1 or INNS2, with suggested payment amounts. These arrive in February and August.

If you've just started your self-employed business, you likely won't owe instalments in your first year. The requirement looks at prior-year tax owing, so new businesses usually don't trigger it until their second or third year of operation.

Who is exempt from instalments?

Not everyone who's self-employed needs to pay instalments. You're exempt if your net tax owing is below $3,000 in either the current year or both of the two preceding years. You're also exempt if you earn employment income alongside your self-employment income and your employer withholds enough tax to cover your total obligation.

If you're in that situation, you can ask your employer to withhold additional tax from your employment income by completing a revised TD1 form and submitting it to your payroll department. . You can learn more about managing freelance taxes in Canada. This can eliminate the need for separate installment payments altogether.

When are tax instalments due?

The CRA requires quarterly installment payments on four fixed dates each year: March 15, June 15, September 15, and December 15. If any of these dates falls on a weekend or a statutory holiday, your payment is due on the next business day.

These dates apply to most self-employed individuals and unincorporated businesses. The key is to mark them in your calendar well in advance so you aren't scrambling to make a payment at the last minute.

There's one notable exception. If your primary source of income comes from farming or fishing, you can make a single annual installment payment by December 31 instead of four quarterly payments.

How to calculate your installment payments

The CRA offers three approved methods for calculating your installment amounts. The best option depends on how predictable your income is and how much effort you want to put into the calculation.

No-calculation option

The simplest approach is to use the amounts the CRA suggests on your installment reminders. The CRA calculates these figures using a formula based on your tax owing from the two previous years. For the first two payments of the year (March and June), they use your net tax owing from two years ago, divided by four. For the September and December payments, they adjust to reflect last year's actual tax owing.

This option works well if your income has been relatively stable. You don't need to do any math yourself.

Prior-year option

With this method, you take your total net tax owing from the previous year and divide it by four. Each quarterly payment is the same amount.

For example, if you earned $80,000 in self-employment income last year and your net tax owing was $15,000, you'd pay $3,750 per quarter ($15,000 divided by four). This method is straightforward and works best when your income doesn't change much from year to year.

Current-year option

This method requires you to estimate your income for the current year, calculate your expected tax owing, and divide by four. It gives you the most accurate installment amounts if your income is rising or falling significantly compared to prior years.

The trade-off is risk. If you underestimate your income and pay too little, the CRA will charge you interest on the shortfall. This option suits you best if you're confident in your income projections and comfortable doing the calculation yourself or with help from your accountant.

How to pay your tax instalments to the CRA

Once you've determined your installment amount, there are several ways to send your payment. Each method gets the money to the CRA, so choose whichever suits your workflow.

1. Online banking: Log in to your bank's online or mobile platform, add "CRA Revenue" or "Canada Revenue Agency" as a payee, and submit your payment using your social insurance number as the account number. This is the fastest and most common method.
2. CRA My Payment: Visit the CRA's My Payment portal and pay using Interac Debit directly from your bank account. You'll need your social insurance number and the payment amount ready.
3. Pre-authorized debit: Set up automatic withdrawals through your CRA My Account. You choose the amount and payment dates, and the CRA debits your bank account on schedule. This is a good option if you want to automate the process and avoid missing a deadline.
4. At your financial institution: Visit your bank or credit union in person and make the payment at the counter. You'll need a personalized remittance voucher from the CRA, which you can print from My Account.
5. By mail: Send a cheque made out to the Receiver General for Canada, along with your remittance voucher, to the address listed on your installment reminder. Allow extra time for mail delivery so your payment arrives before the due date.

What happens if you miss a payment?

Missing an installment or paying less than the required amount doesn't result in an immediate penalty, but it does trigger interest charges. The CRA charges installment interest daily on any late or underpaid amounts. For 2026, the installment interest rate is 7%, calculated as the base prescribed rate of 3% plus 4%.

That interest adds up quickly, especially if you miss more than one payment. And if your total installment interest for the year exceeds $1,000, the CRA may also apply an installment penalty on top of the interest. The penalty equals 50% of the amount by which your interest charges exceed the greater of $1,000 or 25% of the interest you would have owed if you'd made no payments at all.

There is some relief: the CRA uses an interest offset credit system. If you overpay on one installment, that credit can reduce the interest charged on a late or underpaid installment later in the year. The system looks at your entire year of payments as a whole, so an early overpayment can soften the impact of a later shortfall.

How to plan your cash flow for tax instalments

Staying on top of quarterly payments is much easier when you build them into your regular cash flow planning. Here's how to set yourself up.

1. Set aside 25% to 30% of every payment. Transfer a portion of each client payment into a separate savings account dedicated to taxes. This way, when an installment date arrives, the money is already waiting.
2. Review your income quarterly. Compare your actual income against your estimates at the end of each quarter. If your revenue is running higher or lower than expected, adjust your next installment accordingly to avoid underpayment interest or unnecessary overpayment.
3. Track income and expenses consistently. Using cloud accounting software to categorize transactions in real time means you always have a clear picture of where you stand. You won't need to scramble through receipts and bank statements when a payment date approaches.
4. Work with a professional. Consider partnering with an accountant or bookkeeper who understands self-employment tax obligations in Canada. They can help you choose the right calculation method and flag any changes in tax law that could affect your instalments.

Simplify your tax management with Xero

Keeping track of income, expenses, and quarterly installment obligations doesn't need to be a manual process. Xero's cloud accounting software gives you real-time visibility into your finances, so you always know where you stand before each installment deadline. Automated bank feeds, expense categorization, and smart reporting take the guesswork out of estimating your tax owing.

Get one month free and see how Xero can help you stay on top of your tax instalments with less effort.

FAQs on tax instalments for self-employed Canadians

Here are answers to some common questions about tax instalments for self-employed Canadians.

Can you avoid paying tax instalments?

You can reduce or eliminate your installment obligation by lowering your net tax owing below $3,000. This might mean maximizing your eligible deductions, contributing to a Registered Retirement Savings Plan (RRSP), or, if you also earn employment income, asking your employer to increase your tax withholding by submitting a revised TD1 form.

Are GST/HST instalments the same as income tax instalments?

No, Goods and Services Tax/Harmonized Sales Tax (GST/HST) and income tax are separate obligations. Income tax instalments cover your personal income tax and CPP contributions. If you're a GST/HST registrant, you may also need to make quarterly GST/HST installment payments depending on your annual net tax owing for GST/HST, but those are calculated and paid independently.

What if your income drops during the year?

You can switch to the current-year calculation method and reduce your remaining installment payments to match your lower expected income. Just be careful with your estimate, because underpaying will result in interest charges if your actual tax owing turns out to be higher than you projected.

Do you need to pay instalments in your first year of self-employment?

Typically, no. The installment requirement is based on your net tax owing in prior years. If you didn't owe more than $3,000 in either of the two preceding years, you won't be required to make installment payments in your first year of self-employment.