Why you got a CRA instalment reminder, and whether you have to pay it

Summary

An instalment reminder is a letter from the Canada Revenue Agency (the CRA, the federal agency that collects tax) asking you to pay part of this year’s personal tax before the year is over. You got one because your net tax owing, the amount you actually had to pay when you last filed, was more than $3,000, or more than $1,800 if you live in Quebec. An employer takes tax off every paycheque and sends it in for you, but a dividend, which is a payment of company profit to a shareholder, has nothing held back at all.

There are four things to do with the letter, in order.

1. Check whether you owe anything at all. Outside Quebec, instalments apply only if your net tax owing, which is what you had to pay on filing after subtracting the tax already withheld from you, is over $3,000 this year and was over $3,000 in either of the two years before it. Landing exactly on $3,000 doesn’t count.
2. If both halves of that test are met, pay the amounts printed on the reminder, on the printed dates. The CRA charges interest on instalments you skip or underpay, and the printed figures remove that risk for the year.
3. Expect two payments rather than four in your first instalment year, which is the first year the CRA asks you for instalments at all. They fall on September 15 and December 15 of that year.
4. Budget for roughly twice your normal annual personal tax bill in cash that year. On April 30 you settle last year’s balance owing, the CRA’s name for everything still unpaid on the return you just filed, then pay all of last year’s tax again across September and December. On an $18,000 tax bill, expect about $36,000 to leave your account.

In our view the printed amount is the right default for almost every owner, and the condition that flips it is step 1. If your net tax owing for the current year lands at or below your applicable threshold, you pay nothing at all, whatever the letter asks for. Our instalment calculator runs that test on your own figures and prices the three options.

Why the letter arrives, and whether you owe anything

Nothing is held back from a dividend, so an owner paid that way sends the CRA nothing all year, and the whole bill falls due on April 30 of the following year, the deadline for paying your personal tax for the year just ended. Instalments put that owner on the quarterly footing an employee is already on, which is why leaving a salaried job for your own corporation tends to produce a reminder about eighteen months later.

An instalment reminder (form INNS1) isn’t a bill, and it isn’t the CRA’s formal statement of what you owe, which is the notice of assessment you get after filing. The CRA builds the reminder from the most recent return it has assessed for you and sends it twice a year, in February and in August.¹ Instalments fall due four times a year, on March 15, June 15, September 15 and December 15, so the February letter covers the first two dates and the August letter the last two.²

Both halves of the test in step 1 have to be true, and for a Quebec resident the figure is $1,800 rather than $3,000.³ Net tax owing itself is the federal tax you owe, plus the provincial tax the CRA collects for your province, minus the tax already deducted at source. A few refundable credits, which the CRA pays out even where you owe no tax, come off as well (e.g. the Canada workers benefit, a top-up for low earnings from work). For a Quebec resident only the federal tax counts, which is why the Quebec threshold is lower.⁴ You needn’t work the figure out for past years, because the CRA already has from your assessed returns, so the only year you have to estimate is the one now running.

Because both halves must be true, one unusual year can’t put you into instalments on its own. If your net tax owing for 2025 was high for a reason that won’t repeat (e.g. a property sale) and your 2026 figure lands at or below your applicable threshold, you can receive a reminder and correctly pay nothing against it.⁵ Note how low that threshold is. A merely smaller draw won’t usually get an incorporated owner under it, and getting the judgment wrong costs you interest from each date you skipped, priced below.

The two payment dates in a first instalment year

Most writing about instalments describes four equal payments across those four dates. In a first instalment year you’ll usually be asked for only the last two, because of how the CRA works out the amounts it prints. For March and June it takes a quarter of your net tax owing from two years back. For September and December it takes your net tax owing from last year, subtracts half your net tax owing from two years back, and splits what’s left across the two dates.⁶ With no tax two years back, March and June come out at zero, and the August letter carries the whole year across September 15 and December 15.

To provide an example, take an owner whose net tax owing for 2025 was $18,000 and whose 2024 figure was nil. Nothing arrives in February 2026, and the August reminder asks for $9,000 on September 15 and $9,000 on December 15, i.e. all of the 2025 tax over again. That same owner also pays the $18,000 balance owing for 2025 on April 30, so $36,000 leaves the bank account during 2026 while the tax for any single year is still $18,000. The extra $18,000 pays the current year’s tax before you file for it the following spring. With income steady, that first transition year is the one where the two full bills overlap.

Paying the printed amount, or working out your own

The CRA lets you pay the amounts printed on the reminder with no arithmetic of your own, which it calls the no-calculation option. The other two methods both mean working the figures out yourself, either from last year’s return (the prior-year option) or from an estimate of the year now running (the current-year option).⁷ Where you pay less than you should have, the CRA charges interest on the shortfall, which is called instalment interest. The charge is worked out under all three methods and you are billed the smallest of the three.⁸ Paying the printed amount in full and on time therefore leaves nothing to charge, and it also caps what you can be charged, so income that doubles mid-year can’t produce doubled instalment interest.

In our view the no-calculation option is the right default for almost every owner, paired with pre-authorized debit, an arrangement where the CRA pulls each payment from your bank account on a date you set. Our answer changes when you can already see the current year coming in well below last year. Working out a lower figure of your own then keeps cash in your hands that you otherwise won’t get back until after the following April 30, and its downside is that estimating low sets interest running from each due date.⁹

What ignoring the reminder costs

Instalment interest runs from each missed due date to your balance-due day, which is April 30 of the following year for most individuals, and it compounds daily, i.e. each day’s charge is added to what you owe and the next day’s is worked out on the larger amount. The rate is the CRA’s prescribed rate on overdue tax, reset every three months, and the current quarter’s figure is on our CRA interest rates page, which also works out the charge on an amount over a number of days.¹⁰ Skipping a first-year payment costs a fraction of that annual rate rather than the whole of it, because the money is outstanding for only part of a year, from the missed date to the following April 30.

A separate penalty can apply once instalment interest for the year passes $1,000. The CRA subtracts the larger of $1,000 or a quarter of the interest you’d owe with no instalments, then halves what’s left.¹¹ Paying a missed instalment late still stops its interest from the day you pay, and paying a later instalment early earns credit interest that nets against the charge. Paying everything you owe by April 30 stops any further interest, but it doesn’t erase the months already run.

How often this changes

Check once a year, in the month the reminder arrives, whether you still have to pay instalments at all, and again mid-year if your net tax owing for the current year starts to look like it will land at or below your applicable threshold. In that case you owe nothing that year whatever the letter says, though the September 15 date forces the judgment well before the year is over. Separately, the prescribed rate on overdue tax is reset every three months, which is why this guide states no figure and links the page that carries the current quarter’s.

Closing thoughts

A first instalment reminder can read like a sign that something has gone wrong with your tax affairs. The letter signals nothing of the sort, because it is generated automatically once an assessed return crosses the threshold. What it asks you to change is the rhythm of your own working capital, from one large withdrawal each April to smaller ones spread through the year. The year to plan for is the doubled-up one. The year after it brings only the four normal instalments, and is unremarkable by comparison. Where the doubled-up year isn’t funded, the money usually comes out of the corporate bank account, and a withdrawal not recorded as salary or a dividend is a shareholder loan. Unless it’s repaid within a year of the corporation’s year end, the whole amount is added to your personal income and taxed.¹²

How we handle it

We check whether the current year actually clears the threshold before anything is paid. Then we set the personal instalment amounts and dates alongside the corporation’s own, and put both on pre-authorized debit so nothing depends on a letter arriving. The owner’s personal return is prepared in the same file as the corporate return, so the figures a reminder is built from are figures we already hold.