Stop Fearing Tax Instalments
— And Start Using Them Instead.
Tax instalments often spark confusion and anxiety for Canadian business owners, especially as deadlines approach.
When anyone hears the word tax instalments, it more than not, initiates a sense of "fight or flight" inside you.
Many people assume instalments mean they did something wrong or that they’re being penalized by the CRA. That’s not the case. Instalments simply mean you now pay part of your taxes throughout the year instead of all at once at filing time.
Think of it like payroll deductions. Employees have tax taken off every single paycheque. Business owners and corporations do something similar through instalment payments. When you understand how they work, instalments actually make tax planning much easier and more predictable.
👉If you’d like to read more the CRA’s overview of instalments, click here
Personal tax instalments
Who Needs to Pay Them?
Personal income tax instalments apply to individuals who earn income without tax being automatically withheld. This commonly includes:
Sole proprietors and freelancers
Individuals with rental income
People with significant investment income
In general, CRA will require instalments if:
You owed more than $3,000 in tax when filing your return, and
You owed more than $3,000 in at least one of the previous two years.
Once this happens, CRA usually sends instalment reminders for the following year.
👉If you’d like to read more on CRA’s explanation of personal tax instalment payments, click here
When Personal Instalments are Due
All payments go toward the tax balance that will eventually appear on your personal tax return. These payments are paid four times per year:
March 15
June 15
September 15
December 15
👉If you’d like to read more on CRA’s official instalment due dates, click here
How CRA Calculates Personal Instalments
CRA typically calculates instalments using information from your previous tax returns. There are three common ways instalments can be calculated:
CRA Suggested Amounts: CRA sends instalment reminders based on your previous tax balance.
Prior-Year Method: You base instalments on the tax owing from your most recent return.
Current-Year Estimate: You estimate your tax for the current year and base instalments on that estimate.*
*This last option can help if your income drops. However, if instalments are underestimated, CRA may charge interest on the difference!
Corporate tax instalments
When a Corporation Must Pay Them
Corporations follow a similar system. A corporation generally needs to make instalment payments if it expects to owe more than $3,000 in corporate income tax for the year.
Unlike personal instalments, corporate instalments are usually paid monthly, depending on the corporation’s fiscal year unless they have a perfect compliance history.
GST/HST Instalments
GST/HST instalments work a little differently from personal and corporate income tax instalments, but the idea is the same. They help spread your payments throughout the year instead of having one large balance due.
If your GST/HST balance owing is high enough, the CRA may require you to make instalment payments.
GST instalments are typically paid quarterly, and the due dates are based on your GST/HST filing period, not your year-end.
For example:
If you file annually, instalments are generally due one month after the end of each fiscal quarter
If you file quarterly, instalments are usually not required, since you’re already reporting and paying throughout the year
Because GST filing periods can vary between businesses, your exact instalment dates may look different from someone else’s.
Unlike personal tax, the CRA does not always send reminders for GST instalments, so it’s important to stay on top of your filing period and payment schedule.
Why Instalments Exist
Instalments exist so taxes are paid as income is earned, rather than waiting until the end of the year. Without instalments, many business owners would face very large tax balances when filing their returns.
By spreading payments throughout the year, the system helps reduce the size of that final balance.
Your Cash Flow Tool
The easiest way to think about instalments is as a budgeting system for taxes. Instead of scrambling to pay a large bill later, instalments allow you to make smaller payments during the year. This can help:
Smooth out cash flow
Reduce surprises at tax time
Avoid interest and penalties
Make tax obligations easier to manage
Many business owners also move a percentage of their income into a separate tax savings account each month, so instalment payments are already set aside when they’re due.
Staying Proactive
Interest may apply if instalments are missed or significantly underpaid. The best way to avoid? Stay proactive! Simple habits can make a big difference:
Review your prior-year tax balance
Watch for CRA instalment reminders (note: these are only issued for personal tax, not corporate or GST.)
Set aside money regularly for taxes
Adjust instalments if income changes
For corporate taxes and GST, reminders are not sent, so it’s up to you as the business owner to track and manage these payments. Setting reminders in your calendar for these might be helpful!
*A quick check-in with your accountant during the year can also help ensure instalments still match your current income!
Tax Installments Are Not A Penalty!
Whether you’re a new sole proprietor, an established corporation owner, or a future entrepreneur, understanding tax instalments is essential for confident, proactive financial management.
When managed proactively, instalments help make taxes more predictable and easier to plan for, which ultimately supports better cash flow and fewer surprises at tax time.
Instead of seeing instalments as a penalty, consider them a valuable tool for cash flow planning—one that can help you avoid costly surprises and keep your business on track!
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Book a Discovery Call today!
