Income Tax Installments... And Why CRA Asks for Them

Traci-Lyn Kerr |

I don’t know a single person who enjoys paying the taxman their annual installment payments, but some begrudgingly resign themselves to making them because they know that they are going to owe on April 30th.  And some taxpayers downright refuse to pay their installments and, in doing so, take their punishment by way of interest and penalties on April 30th.

The purpose of paying installments is to cover the tax that you would otherwise have to pay in a lump sum on April 30th for the previous tax year.  Installment payments are not your taxes paid in advance but rather the taxes that should have been taken off your income at source and remitted to CRA on your behalf. Self-employed taxpayers or individuals who own rental properties or have investment income in non-registered accounts will receive a notice in August advising them of their installment payment requirements.  CRA determines if you are required to make installments based on prior years’ tax returns.  

Taxpayers who owe $1,800 in Quebec and $3,000 in the rest of Canada will be required to make installments on your previous year’s return.  You may be required to pay installments for a couple of years until you establish a ‘clean’ track-record again with CRA.

Installment payments are typically due on March 15th, June, September, and December. 

Any taxpayer who does not pay their installments and owes tax at the end of the year will pay interest on the unpaid tax instalments dating back to the due date of the missed payment. CRA’s interest rate is generally around 5%.  If a taxpayer still owes taxes after making the required installment payments as set forth by CRA, the taxpayer will not be penalized.  If you overpay in installments through the year, you will receive it back by way of your tax refund. 

In summary, it is best to make your installments if you want to avoid giving CRA any extra money!! 

Like any other debt, we, the taxpayers, are responsible for paying interest on what we owe.