Receiving a CRA instalment reminder in the mail or through your CRA My Account can be confusing and even intimidating if you’re not familiar with the instalment system. These notices are sent to taxpayers who are required to pay their income tax in multiple payments throughout the year, rather than in one lump sum at tax time.
This comprehensive guide will walk you through what CRA instalment reminders mean, who receives them, how to calculate payments, what happens if you ignore them, and how to respond correctly to avoid interest and penalties.
1. What Is a CRA Instalment Reminder?
A CRA instalment reminder is a notice sent by the Canada Revenue Agency to individuals or businesses who are expected to make periodic tax payments throughout the year. These notices are not bills but suggestions based on your previous tax filings. They indicate that you may need to pay tax in instalments rather than waiting until the year’s end.
Instalment payments are typically required when your income is not subject to regular withholding (e.g., self-employment, investment income, rental income, or pension without sufficient tax withheld).
2. Who Has to Pay Instalments?
You may be required to pay tax instalments if:
- Your net tax owing was more than $3,000 in the current year and in either of the two previous years ($1,800 for Quebec residents)
- Your source of income (like rental, investment, or self-employment) does not withhold enough tax during the year
These thresholds apply to individual taxpayers. Businesses (e.g., corporations or trusts) have separate instalment rules and timelines.
3. When Are CRA Instalment Reminders Sent?
The CRA generally sends instalment reminders twice a year:
- February Reminder: Covers March 15 and June 15 instalments
- August Reminder: Covers September 15 and December 15 instalments
The reminders suggest amounts based on previous year(s) tax owed. However, these are just estimates—you are responsible for ensuring you pay enough to cover your actual tax for the year.
4. Types of Instalment Calculations
There are three accepted methods to calculate your tax instalments:
4.1 No-Calculation Option (CRA Suggested Amounts)
Use this if your income, deductions, and credits stay consistent year to year. The CRA calculates amounts for you based on your last assessed returns.
4.2 Prior-Year Option
Use your actual net tax owing from the previous year, divided into four payments. This is useful if your income declined slightly compared to the previous year.
4.3 Current-Year Option
Estimate your current year’s tax liability and base instalments on that. This is ideal if your income has decreased significantly or if you expect large deductions/credits.
Warning: If you underpay using your estimates, the CRA may charge interest if the final balance owing exceeds the threshold.
5. How to Make an Instalment Payment
There are multiple ways to make your instalment payments:
- Online banking (add “CRA (revenue) – tax instalment” as a payee)
- Through CRA My Account or the MyCRA mobile app
- Using pre-authorized debit (PAD) setup through CRA online
- Mailing a cheque with the instalment remittance form (INNS3)
Payments must be received by the CRA on or before the due date to avoid interest charges.
6. What If You Miss an Instalment or Pay Late?
If you don’t make your instalment payments on time or in full, the CRA may charge instalment interest and possibly a penalty if your payments are significantly low.
Here’s how it works:
- Interest: Charged on the amount you should have paid, from the due date to the date of actual payment
- Penalty: Applied if your total interest exceeds $1,000 in a tax year; it’s 25% of the instalment interest over $1,000
You can view interest and penalty charges under “Instalments” in your CRA My Account.
7. How to Respond to the Instalment Reminder
Here’s how you should respond, depending on your situation:
- Income is similar to previous years: Follow the CRA’s suggested amounts and due dates
- Income has dropped significantly: Use the current-year method and estimate your reduced tax owing
- Already paid enough: If you’ve already made payments or had sufficient withholding from other income, no further action may be needed
- Unsure: Consult a tax professional or use CRA’s online instalment calculator
Even though the reminder isn’t legally enforceable, ignoring it when you meet the instalment requirements could lead to costly interest.
8. Tips to Avoid Instalment Interest
- Set calendar reminders for the due dates (March 15, June 15, September 15, December 15)
- Use pre-authorized debit to automate payments
- Overpay slightly to avoid underestimation interest charges
- Review your NOA or tax software summaries to project income accurately
- File on time to avoid stacking penalties on unpaid balances
9. Instalment Planning for Self-Employed Individuals
Self-employed individuals are the most common group required to pay instalments. Since no tax is withheld from their business income, it’s important to:
- Set aside a portion of income regularly for tax obligations
- Track expenses and income closely
- File on time and calculate expected income quarterly if needed
- Consider using a business bank account just for tax purposes
10. Final Thoughts
CRA instalment reminders serve as a helpful warning that you may need to pay your taxes in parts instead of one lump sum. Ignoring them may lead to interest charges, even if your final tax bill is manageable.
By understanding how CRA calculates your instalment suggestions and how to respond based on your unique financial situation, you can manage your cash flow, avoid penalties, and maintain a strong relationship with the tax authority. Whether you choose to follow CRA’s suggested amounts or calculate your own, the key is to plan ahead and pay on time.
When in doubt, consult a tax advisor or use CRA’s online resources to ensure your instalments are calculated and paid correctly. Proactive tax planning always beats surprise tax bills in April.
