As a self-employed individual in Canada, no employer withholds income tax from your business income. That means you are responsible for remitting tax on your earnings yourself — and if you owe more than $3,000 in net federal and provincial income tax, you are required to make quarterly tax instalment payments to CRA throughout the year. Missing these payments — or underpaying them — triggers instalment interest and potentially instalment penalty charges, even if you pay the full balance owing when you file your T1 return. This guide explains when instalments are required, how to calculate them, and when they are due.
Who Must Make Tax Instalment Payments?
You are required to make tax instalment payments for 2025 if your net tax owing (federal and provincial income tax combined, after credits but before instalments already paid) is more than $3,000 in either the current year (2025) or in either of the two preceding years (2023 or 2024).
The $3,000 threshold is $1,800 for residents of Quebec (since Quebec administers its own provincial income tax separately). This threshold applies to individuals receiving income that is not subject to source withholding — primarily the self-employed, but also investors receiving large amounts of rental income, interest, dividends, or pension income without adequate withholding.
2025 Quarterly Instalment Due Dates
For the 2025 tax year, the four quarterly instalment due dates are:
- March 15, 2025 — first instalment
- June 15, 2025 — second instalment
- September 15, 2025 — third instalment
- December 15, 2025 — fourth instalment
If any of these dates falls on a weekend or statutory holiday, the due date moves to the next business day. Payment is considered made on the day CRA receives it — not the day you initiate a bank transfer. For payments made through online banking, allow 2–3 business days.
Three Methods to Calculate Your Instalments
CRA offers three calculation methods. You choose the one that results in the amount you want to pay — you are not penalized for using a different method, only for paying too little. CRA sends instalment reminder letters in February and August suggesting an amount based on the "prior year" method.
Method 1: No-Calculation Method (CRA's Suggested Amount)
Pay the amount CRA suggests on its instalment reminder letters, which is calculated using your prior year's net tax owing. If you pay exactly what CRA suggests each quarter (two payments based on two years ago and two based on one year ago), you will not be charged instalment interest, even if your actual tax for the current year is higher. This is the safest option for those who don't want to calculate.
Method 2: Prior Year Method
Pay one-quarter of the prior year's net tax owing each quarter. If your 2024 net tax owing was $20,000, pay $5,000 per quarter in 2025. This method generates no instalment interest if the amounts paid equal at least the prior year's tax (even if the current year's tax ends up higher).
Method 3: Current Year Method
Estimate your 2025 income and calculate your estimated 2025 net tax owing, then pay one-quarter per quarter. If you are accurate, you pay only what is needed — useful if your income drops significantly from the prior year. However, if you underestimate, instalment interest accrues on the shortfall from each due date.
How Instalment Interest Works
If you pay less than the required amount under either the no-calculation or prior year methods, CRA charges instalment interest on the shortfall from each instalment due date to the date you pay or to April 30, whichever comes first. The instalment interest rate is the prescribed interest rate plus 4 percentage points — this rate changes quarterly and is posted on CRA's website.
Instalment interest is not deductible for individual taxpayers (unlike for corporations). It adds up quickly on large shortfalls, particularly at the prevailing prescribed rates.
Instalment Penalty
In addition to interest, a penalty applies when your instalment interest for the year exceeds $1,000. The penalty is 50% of the amount by which instalment interest exceeds the greater of $1,000 or 25% of the instalment interest calculated as if no instalments were paid at all. For most moderate earners, the penalty threshold is rarely triggered — but for very high earners who miss several quarters, penalties can be substantial.
CPP Contributions for the Self-Employed
In addition to income tax, self-employed individuals are responsible for both the employee and employer share of CPP contributions — at a combined rate of 11.9% on net self-employment earnings between the basic exemption ($3,500) and the Year's Maximum Pensionable Earnings (YMPE, $71,300 for 2025). The maximum combined CPP1 contribution for 2025 is approximately $8,068.
CPP2 — the second tier of CPP introduced in 2024 — applies an additional contribution rate of 4% on earnings between the YMPE ($71,300) and the Year's Additional Maximum Pensionable Earnings ($81,900 for 2025), with a maximum CPP2 contribution of approximately $432. These CPP contributions are paid with your T1 balance owing at the April 30 filing deadline — they are not paid in quarterly instalments. The self-employment CPP contributions are partially deductible: 50% of the combined contribution is deductible on Line 22200 of your T1.
How to Pay Instalment Payments to CRA
Instalment payments can be made:
- Online banking — add CRA as a payee under "CRA (Revenue) — Personal Income Tax" or "CRA Inst-Personal Income Tax Instalment" and use your SIN as the account number
- CRA My Account — use the "Make a payment" feature
- Pre-authorized debit (PAD) — set up through CRA My Account to automatically debit your bank on instalment due dates
- In-person at a bank or credit union using a remittance voucher (Form INNS3, available in CRA's instalment reminder)
At Swift Accounting Ltd. Calgary, we help self-employed clients estimate their quarterly tax obligations, set up an instalment payment schedule, and avoid interest charges — especially in years with significant income fluctuations.
Frequently Asked Questions
What happens if I don't pay tax instalments and just pay everything when I file?
If you owe more than $3,000 in net tax and you paid nothing toward it during the year, CRA will charge instalment interest from each missed quarterly due date to April 30 of the following year. Paying the full balance on April 30 does not eliminate the interest that already accrued — it just stops further accrual. The interest can be hundreds or even thousands of dollars for high earners.
If I pay the amount on CRA's instalment reminder letter, am I protected from interest charges?
Yes — if you pay exactly the amounts suggested on CRA's no-calculation instalment reminder letters (based on two prior years), CRA will not charge instalment interest even if your actual 2025 tax ends up much higher. This is the safest method for those with fluctuating or uncertain income.
Do I pay instalments on both federal and provincial income tax?
Yes — the instalment payment you make to CRA covers both federal and provincial income tax (except Quebec residents, who pay Quebec instalments separately to Revenu Québec). The $3,000 threshold refers to your combined federal and provincial net tax owing.
Can I deduct instalment interest paid to CRA?
No. For individual taxpayers, instalment interest paid to CRA on late or insufficient personal income tax instalments is not deductible. This is different from interest on money borrowed to earn income (which is deductible). The non-deductibility makes avoiding instalment interest especially important — every dollar of interest paid is truly an after-tax cost.
Tax instalments are one of the most commonly misunderstood obligations for the self-employed — and one of the easiest sources of avoidable interest charges. The team at Swift Accounting Ltd. Calgary helps self-employed professionals and business owners estimate their quarterly obligations, set up a payment schedule, and ensure they are never caught off guard by a large April balance. Contact us today to get your self-employment tax planning on track.