Quarterly Tax Instalments for the Self-Employed

Employees have tax withheld from every paycheque. Self-employed freelancers and contractors don’t — which means the CRA expects some people to pay their income tax in instalments throughout the year instead of as one lump sum the following April.

The $3,000 threshold

You may have to pay instalments if your net tax owing is more than $3,000 ($1,800 for Quebec filers, who also pay provincial tax separately) in the current year, and it was also over that threshold in at least one of the two previous years. Both conditions have to be true — one high-tax year on its own, immediately followed by a low one, doesn’t necessarily trigger instalments going forward.

“Net tax owing” is roughly your total federal and provincial tax bill, minus whatever was already withheld at source. For a self-employed person, this also factors in CPP contributions and any voluntary EI premiums — not just income tax.

Due dates

Instalments are due four times a year: March 15, June 15, September 15, and December 15 (farmers and fishers have a single December 31 due date instead). The CRA sends instalment reminders (form INNS1) — a February reminder covering the March and June payments, and an August reminder covering September and December.

Three ways to calculate the amount

You can use whichever of these three methods results in the lowest instalments:

1. No-calculation method — pay the amount the CRA calculates and shows on your instalment reminder, based on your two most recent assessed returns. Simplest, but can overpay if your income is trending down.
2. Prior-year method — base this year’s instalments on last year’s actual tax owing. Useful if this year looks similar to last year.
3. Current-year method — estimate this year’s actual tax owing and pay based on that. Can save money in a down year, but if your estimate is too low, the CRA can charge instalment interest on the shortfall.

What happens if you skip them

If you were required to pay instalments and didn’t (or paid too little), the CRA can charge instalment interest calculated from each due date, plus a possible penalty if the interest is large enough. There’s no grace period tied to your eventual April filing — the interest clock runs from each quarterly due date you missed.

This is general information, not tax advice. The $3,000/$1,800 thresholds and calculation methods can change — verify your specific situation against the CRA source above or with an accountant, particularly in your first year or two of self-employment when instalment requirements often first kick in.