Quarterly Tax Instalments: A Guide for Self- Employed Taxpayers – A Complete Guide by a Montreal CPA Firm Near You

Quarterly tax instalments are one of the most misunderstood obligations for self-
employed Canadians. Many freelancers and small business owners assume they can
simply “pay taxes at year-end,” only to receive a notice from CRA requiring them to pay
instalments—or worse, charging them instalment interest for failing to do so. When your
business grows, or when taxes owed exceed a certain threshold, CRA requires you to
make payments throughout the year to cover your income tax and CPP obligations.
Failure to pay instalments can result in hundreds or thousands of dollars in interest
charges, even if your tax return is eventually filed correctly. Understanding quarterly tax
instalments for self-employed individuals in Canada is essential for budgeting, avoiding
penalties, and staying compliant.
Legal and Regulatory Framework
The requirement to pay quarterly instalments is governed by section 156 of the Income
Tax Act, and applies when the taxpayer’s net tax owing exceeds specific thresholds.
You must pay instalments if:

1. Your net tax owing (federal + provincial) was over $3,000 in the current year
   and

2. Over $3,000 in either of the two previous years.
   For Québec residents, since QPP and provincial tax apply separately, the combined
   threshold is also $3,000 for federal and an additional calculation applies for Revenu
   Québec.
   Instalment options include:
   • No-calculation method – CRA tells you how much to pay
   • Prior-year method – based on last year’s tax
   • Current-year method – based on your expected current income
   Payments are due four times per year:
   • March 15
   • June 15
   • September 15
   • December 15
   These statutory rules define when and how self-employed individuals must pay
   quarterly tax instalments in Canada.
   Key Court Decisions
   The courts have consistently upheld CRA’s strict application of instalment interest rules.
   In Stevens v. Canada, the taxpayer argued that instalment interest was unfair because

they paid the balance on time. The court held CRA was correct—instalment interest is
statutory and unavoidable when instalments are missed.
In Hickey v. Canada, the court ruled that taxpayers must follow the instalment schedule
even if income fluctuates significantly.
In Hollyer v. Canada, CRA assessed instalment interest after the taxpayer
underestimated their current-year income. The court upheld the assessment,
emphasizing that the current-year method carries inherent risk.
These decisions show that CRA enforces instalment rules rigidly and interest applies
even when no balance is owed at year-end.
Why CRA Targets This Issue
CRA closely monitors self-employed taxpayers because instalment requirements are
commonly misunderstood. CRA issues instalment reminders when:
• income from self-employment increases suddenly
• taxes owed exceed $3,000
• GST/HST registrants show growing revenues
• deductions fluctuate from year to year
• prior-year returns were filed with a balance owing
CRA also charges instalment interest and instalment penalties, which can grow
quickly even for small businesses. Because instalment interest is not waiveable except
under the Taxpayer Relief Program, CRA treats instalment compliance as a priority
enforcement area.
Mackisen Strategy
At Mackisen CPA Montreal, we help self-employed Canadians stay ahead of instalment
requirements and avoid costly interest charges. Our structured approach includes:
• calculating projected annual tax and CPP/QPP amounts
• determining the most cost-effective instalment method
• preparing a customized instalment schedule
• advising clients on how to set aside tax money monthly
• integrating GST/HST and QST budgeting with instalments
• reviewing income quarterly to adjust instalments as needed
• defending taxpayers in cases where instalment interest should be reduced under the
Taxpayer Relief Program
This ensures you remain fully compliant while avoiding needless penalties and interest.
Real Client Experience

A successful graphic designer was shocked to receive a $1,200 instalment interest bill
after ignoring CRA’s notices. We corrected her instalment plan, submitted a taxpayer
relief request, and set up a monthly tax savings system.
Another client, a contractor with fluctuating income, underpaid instalments thinking
income would drop later. CRA assessed interest. We moved him to the prior-year
method to stabilize payments.
A rideshare driver owed more than $6,000 in taxes annually but never paid instalments.
CRA charged interest automatically. We created a quarterly savings strategy and
corrected future instalments.
Common Questions
Self-employed individuals often ask whether CRA instalment reminders are mandatory.
Yes—if your tax owing exceeds the threshold.
Others ask whether instalment interest can be waived. Only under exceptional
circumstances.
Some ask whether income fluctuations matter. CRA still expects instalments according
to rules.
Another question: Can instalments be paid monthly instead of quarterly? Yes—CRA
accepts more frequent voluntary payments.
Why Mackisen
With more than 35 years of combined CPA experience, Mackisen CPA Montreal helps
self-employed Canadians stay compliant while avoiding unnecessary instalment
interest. Whether your business income is steady or fluctuates dramatically, our expert
team ensures you pay only what is required—no surprises, no penalties.