CRA Tax Instalments: A Comprehensive Guide 0

Posted On March 14, 2024, by Trevor Buttle

Tax instalments represent a fundamental aspect of Canada’s tax system. They serve as essential prepayments made throughout the year to cover taxes that would typically be paid in one lump sum, such as personal taxes due on April 30th of the following year. Similar to how taxes are withheld directly from each pay cheque by an employer, instalments are remitted periodically as income is earned. These payments ensure that individuals and businesses meet their tax obligations in a timely manner. In this guide, we will go over personal, corporate, and HST tax instalments along with calculation options, important deadlines, and tips for managing tax instalments effectively.

Personal Tax Instalments

Personal tax instalments are payments made by individuals throughout the year to cover their income tax obligations. If an individual’s “net tax owing”, excluding installments, exceeded $3,000 in either of the previous two taxation years, they are typically required to make quarterly instalment payments. Common scenarios necessitating personal tax instalments includes self-employment income, rental or investment income, certain pension payments, or income from multiple sources.

The calculation of personal tax instalments can be approached in one of three ways:

  • No calculation option: If income, deductions, and credits remain consistent, the CRA determines instalment amounts based on the latest assessed tax return.
  • Prior year option: If the upcoming year’s financial situation mirrors the previous year but significantly differs from two years ago, payments are based on the previous year’s instalment amounts.
  • Current year option: When income and deductions are expected to vary significantly from the previous two years, instalments are calculated based on the current year’s estimated net tax owning. This is typically used when your estimated tax owing in the following year is lower than what it was in the preceding year.

Instalments are due quarterly, with payments deadlines falling on March 15th, June 15th, September 15th, and December 15th. Failure to make timely payments can result in instalment interest compounded daily at a prescribed interest rate and possible penalties. To manage personal tax instalments effectively, consider estimating your tax liability accurately and setting aside funds accordingly.

Corporate Tax Instalments

Businesses operating in Canada must also make corporate tax instalments throughout the year to prepay their estimated tax liabilities. Similar to personal instalments, corporations with tax payable exceeding $3,000 in a tax year are generally required to make these payments.

In Canada, the deadlines for quarterly corporate tax installment payments depend on the corporation’s taxation year-end. Quarterly installment deadlines are usually the last day of the third, sixth, ninth, and twelfth months of their taxation year. Other corporations with taxes exceeding $3,000 that do not the meet the criteria for quarterly payments must remit monthly installments. Some examples of these corporations would be non-Canadian Controlled Private Corporations, corporations non-compliant with CRA with one of their accounts, or corporations with taxable income great than $500,000.

GST/HST Tax Instalments

Goods and Services Tax (GST)/Harmonized Sales Tax (HST) is administered by the Canada Revenue Agency (CRA), and the businesses that are required to collect GST/HST are typically required to remit it on a regular basis. The frequency and amount of these instalments depend on the business’s annual sales revenue and reporting period.

For most small businesses with annual taxable supplies under $1.5 million, they can choose to file and remit GST/HST annually, quarterly or monthly. For small businesses with annual taxable supplies at or above $6 million, they must file and remit GST/HST monthly.

Individuals with GST/HST annual filing requirements (sole proprietors), must file the GST/HST return by June 15th and pay the estimated taxes owing by April 30th. Corporations with annual filing requirements must file and pay balance of estimated taxes 3 months after year-end. Monthly and quarterly filers are required to file and remit their GST/HST one month after the period that they are reporting.

Installments are only applicable for annual filers. Again, the magic number is $3,000, so if you are an annual filer with greater than $3,000 GST/HST owing, you must make quarterly installment payments by the last day of the fiscal quarter.

Note: It is important to verify these deadlines with the CRA or a tax professional, as they may vary depending on specific circumstances or changes in tax laws.

Tips for Managing Tax Instalments Effectively

  • Maintain accurate financial records to facilitate instalment calculations.
  • Monitor changes in income and deductions to adjust instalment amounts accordingly.
  • Utilize tax planning strategies to optimize instalment payments and cash flow.
  • Set aside funds regularly to cover upcoming instalment obligations.
  • Seek guidance from tax professionals to ensure compliance with CRA requirements.

Understanding and managing tax instalments is essential for individuals and business to remain compliant with tax regulations in Canada. By familiarizing yourself with the calculations methods, due dates, and compliance requirements, you can effectively navigate the complexities of tax instalments and avoid penalties and interest charges. Stay proactive, stay informed, and enlist professional support when needed to ensure a smooth tax experience in Canada.

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This blog is not meant to provide specific advice or opinions regarding the topic(s) discussed above. Should you have a question about your specific situation, please discuss it with your GBA advisor.

GBA LLP is a full-service accounting firm in the Greater Toronto Area, but we primarily service all of Ontario as well as the rest of Canada virtually, except Quebec. Our team of over 30, provides Audits and Reviews of financial statements, and Compilations of financial information, as well as corporate tax returns. We provide specialized corporate tax and succession planning for small and medium businesses, in addition to general advisory services.

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