Why the CRA Requests Tax Instalments and How You Can Reduce Them

Tax instalments are quarterly CRA prepayments based on net tax owing.

By Promissory.ca Editorial Team Reviewed against official Canadian sources Last updated: 2026-09-16

Tax instalments are not a separate tax. They are quarterly prepayments toward the income tax the CRA expects you to owe for a tax year. The CRA asks for them when the tax withheld at source, such as from an employer or pension, is not enough to cover your total net tax owing. Paying by instalment helps you avoid a large balance due and the interest that can build on unpaid tax.

Why the CRA asks for tax instalments

Canada's tax system is pay-as-you-go. Most employees have tax deducted from each paycheque, and many pensioners have tax withheld from pension payments. When those deductions do not cover your final tax bill, the CRA expects you to pay the shortfall during the year rather than waiting until the filing deadline. Instalments spread that shortfall across the year.

Who typically receives an instalment request

• Self-employed people and independent contractors who do not have tax withheld from their income.
• People with rental income, investment income, or capital gains that are not subject to withholding.
• People with multiple employers, pensions, or income sources where each payer withholds as if it were the only income.
• People who receive income from outside Canada or from sources that do not deduct Canadian tax.
• People whose tax credits, deductions, or withholding amounts change significantly from one tax year to the next.

The CRA does not ask every taxpayer with a balance due. It uses a threshold test based on net tax owing. As a general rule, you may have to pay tax instalments if your net tax owing is more than $3,000, or more than $1,800 in Quebec, for the tax year in question and either of the two preceding tax years. If you meet that test, the CRA may send you an instalment reminder or notice.

Farmers and fishers

Farmers and fishers have a different instalment schedule. Instead of four quarterly payments, they generally have one due date: 31 December. If you are unsure which schedule applies to you, review the CRA's instalment guidance or speak with a qualified tax professional.

How CRA tax instalments work

Instalments are based on an estimate of your net tax owing. The CRA may calculate the amount using information from your tax returns, but you are responsible for paying enough to cover your actual tax liability. If your income changes, the suggested amounts may no longer be accurate.

What happens if you pay too little

If you pay less than required, the CRA may charge interest on the shortfall. In some cases, a penalty may also apply. The exact amount depends on your situation and on CRA administrative rules, so it is better to review your instalment balance before the due date rather than after.

What happens if you pay too much

Overpaying instalments is not usually a problem in the long run. The extra amount is generally applied against your tax balance or refunded after your return is assessed. However, paying too much during the year can strain your cash flow, so it is worth keeping your estimates reasonably current.

How to reduce or stop tax instalments

You may be able to reduce or stop instalments if you can show that your net tax owing will be lower than the CRA's calculation. The key is to act before the next due date and to keep evidence of why your estimate changed.

Increase tax withheld at source

One of the simplest ways to reduce instalments is to have more tax withheld from income that is already subject to withholding. For example, you may be able to ask an employer or pension administrator to withhold additional tax. If enough tax is withheld during the year, you may no longer need to make quarterly instalment payments. The withholding is treated as tax paid, so it reduces the balance owing at filing.

Ask the CRA to recalculate your instalments

If your income has fallen, you have retired, you sold an asset, or you expect larger deductions or credits, you can ask the CRA to recalculate your instalment amount. The CRA may adjust the reminder based on the information you provide. Keep in mind that if your estimate is too low, interest may still apply, so a reduction request should be based on a realistic projection rather than wishful thinking.

Use a lower instalment calculation method where appropriate

The CRA generally offers more than one way to calculate instalments. Some methods look back at prior tax years, while others allow you to estimate the tax year in question. If your income has changed materially, a method based on the tax year in question may produce a lower required amount. Review the available options and choose the one that best reflects your expected net tax owing.

Adjust for one-time income and deductions

Instalments can be especially confusing when your income includes one-time events. A large capital gain, a lump-sum pension payment, or a one-time withdrawal can push up your tax owing in one tax year without repeating. If the CRA's calculation is based on that unusual year, you may be able to reduce the instalments for the following tax year by explaining the change.

Practical steps to lower or eliminate instalments

1. Estimate your net tax owing for the tax year in question using current income projections.
2. Compare that estimate with the CRA's suggested instalment amounts.
3. Increase withholding at source if you can, especially from salary, pension, or other regular payments.
4. Ask the CRA to recalculate if your income, deductions, or credits have changed substantially.
5. Pay the revised amount by each due date and keep records of your calculations.
6. Review your situation again before the next instalment date, because income can change during the year.

Common mistakes with tax instalments

• Ignoring the CRA's reminder because you expect a refund. A refund can still occur even if instalments were required, but interest may apply if you underpaid.
• Assuming instalments are optional. The CRA may charge interest if you did not pay enough, even if you eventually pay the full balance at filing.
• Using a prior tax year's income when your situation has changed. A method that looks backward may overstate what you owe.
• Failing to tell the CRA about a reduction in income. The CRA can only adjust if it has updated information.
• Paying a different amount without checking the effect on the total. Each payment should fit into a clear estimate of your net tax owing.

Tax instalments and cash flow

Quarterly instalments can be difficult for people whose income arrives unevenly. If you are self-employed or earn commission income, you may receive large payments in some months and little in others. Building a separate tax reserve account can help. Set aside a percentage of each payment you receive, then use that reserve for instalments and the final balance.

If you cannot pay an instalment on time, contact the CRA as early as possible to discuss your options. General information about payment arrangements is available from the CRA, but the specific outcome depends on your circumstances. This guide is general information only and is not tax, legal, or financial advice. For advice about your own tax situation, consult a qualified tax professional.

Final thoughts on tax instalments

Tax instalments exist to keep your tax payments aligned with your income throughout the year. They are not a penalty, and they are not extra tax. If your net tax owing is high enough, the CRA may require them. You can reduce or stop them by increasing withholding, correcting the CRA's estimate, and documenting why your expected tax owing has changed. Reviewing your instalments before each due date is one of the simplest ways to avoid interest and keep your cash flow under control.