The quarterly instalment due dates are the 15th of March, June, September and December. The CRA sends out reminder notices in February and August.Sashkinw/iStockPhoto / Getty Images
Recent retirees are often unpleasantly surprised to learn they may have to pay taxes to the Canada Revenue Agency (CRA) every three months, rather than just once a year when they file a return.
“It’s confusing, especially for people who get an instalment request for the first time,” says Jason Heath, managing partner at Objective Financial Partners Inc. in Markham, Ont.
The CRA expects someone to pay taxes in quarterly instalments if they owe more than $3,000 (after source deductions) in taxes in the current tax year, and $3,000 in taxes in either of the two previous tax years. (In Quebec, the threshold is $1,800.)
Someone earning employment income generally has taxes withheld by their employer at source, meaning that when they file their tax return and calculate their taxes owing the following April, they may only have to pay a modest amount, or they may receive a refund.
However, retirees’ income often comes from sources with no automatic withholding of taxes, such as registered retirement income fund minimum (RRIF) withdrawals, Canada Pension Plan (CPP) and Old Age Security (OAS) payments, and non-registered investments.
As a result, “almost every retiree ends up having to pay instalments,” Mr. Heath says.
Calculating quarterly instalments
The quarterly instalment due dates are the 15th of March, June, September and December. The CRA sends out reminder notices in February and August.
The agency calculates the amount of the instalments based on the taxpayer’s latest assessed tax return. For March and June, that means the instalments are based on the tax year two years before the current one.
Meanwhile, the September and December payments are based on the year before the current one, adjusted for what the taxpayer already paid in March and June. The total of the four instalments equals the prior year’s tax liability.
“It’s a rough estimate of what CRA figures you’ll owe for the current year using the two previous years,” Mr. Heath says.
When the taxpayer files their return by April 30 of the following year, they’re either refunded for taxes they overpaid by instalment, or they pay the difference between their taxes owing for the year and what they already paid via instalments.
However, it’s a common misconception that a taxpayer must pay the CRA’s suggested instalment amounts, or that they have to pay by instalment at all, Mr. Heath says.
For example, a taxpayer who thinks they’ll owe $3,000 or less in taxes in the current tax year can choose not to pay by instalment. However, if they ultimately have taxes owing for the year of more than $3,000, they’ll be subject to interest and potential penalties on amounts owing from when they were due by instalment.
The CRA also offers taxpayers three options for calculating quarterly instalment amounts: the no-calculation option, the prior-year option, and the current-year option.
The no-calculation option is the CRA’s method of calculating instalment amounts (described above). A taxpayer who pays the CRA’s suggested instalment amounts won’t be subject to interest or penalties even if their taxes owing for the year exceed the amounts paid by instalment.
However, the risk for the taxpayer is that the CRA’s suggested instalment amounts exceed what they owe in taxes for the year. That can happen if their income in the previous year is much higher than what they expect for the current year.
In this scenario, a taxpayer will overpay their taxes and may see “a significant cash-flow hit during the year,” says Blair Evans, assistant vice-president, tax and estate planning, at IG Wealth Management Inc. in Winnipeg.
Although the CRA will credit a taxpayer for overpaying taxes, it won’t pay interest on overpayments.
The prior-year option bases quarterly payments on the prior year’s income. It’s the best option if the taxpayer’s income in the previous year is similar to their current income but significantly different from their income of two years ago.
The current-year option allows the taxpayer to base quarterly instalments on the amount of taxes they think they’ll owe for the year, which is the best option if their income for the current year is significantly different from the previous two.
Taxpayers who opt to use either the prior-year or the current-year options (or to not pay by instalment at all) risk underpaying taxes for the year and incurring interest and penalties.
The CRA charges interest on overdue amounts compounded daily at the prescribed interest rate, which in the fourth quarter of 2025 is 7 per cent. The CRA will also charge a penalty if the instalment interest for the current year exceeds $1,000.
Financial planning for instalments
Some retirees choose simply to pay the CRA’s suggested instalment amounts each year, even authorizing automatic withdrawals.
However, Mr. Heath says he prefers clients manage instalment payments year to year rather than just paying the suggested amount because annual income can fluctuate.
For example, a client who realizes a significant capital gain selling a vacation home in one year may find themselves with large CRA-suggested instalment payments for the next year that don’t reflect their expected income.
Retirees paying taxes by instalment will need to ensure they set aside enough cash through the year to make the quarterly payments, Mr. Evans says.
If someone misses an instalment payment or pays it late, they can reduce or eliminate accruing interest by overpaying their next instalment payment or paying the next instalment early.
Early instalment payments earn CRA instalment credit interest (at the same rate the CRA charges on interest), which is not refundable, but can be used to reduce interest on late instalment payments in the same year.
For clients who prefer to avoid paying taxes by instalment altogether, Mr. Heath suggests asking Service Canada to withhold taxes from the CPP and OAS at source, and asking financial institutions to increase withholding taxes on RRIF withdrawals.
Mr. Evans adds that increasing withholding tax voluntarily may be a good option for certain clients.
“You’re getting a smaller net amount every month, but it’s not a big chunk [of tax] coming out every quarter,” he says.
Editor’s note: The story has been corrected to indicate that the CRA calculates instalment credit interest using the same rate it uses for overdue instalment payments. A previous version of the story indicated the rate was set two percentage points lower than the rate for overdue payments.