Guide to Quarterly Estimated Tax Payments for 2026
If you’re self-employed, earn rental income, or have other income not subject to withholding tax, the Canada Revenue Agency may require you to make quarterly tax installment payments. Understanding when installments are required, how to calculate them, and how to make payments properly ensures you stay compliant while managing your cash flow effectively.
At BBS Accounting in Toronto, we help many Ontario entrepreneurs and investors navigate installment requirements. While the concept seems straightforward, the calculations and timing can be confusing without proper guidance.
Who Must Make Tax Installments?
The CRA requires tax installments from individuals whose net tax owing (federal and provincial combined) exceeds $3,000 in the current year and in either of the two preceding years.
Net tax owing means your total tax liability minus amounts withheld at source and minus refundable credits. If your employer withholds taxes from your paycheque, those withholdings reduce your net tax owing. If you have no withholding because you’re self-employed, your net tax owing equals your total tax liability.
Example: In 2024, you owed $8,000 in total taxes with no withholding. Your net tax owing was $8,000, exceeding the $3,000 threshold. In 2025, you again owed $7,000. For 2026, the CRA will require quarterly installments.
Common groups required to make installments include self-employed individuals and business owners in Ontario, investors earning significant rental or investment income, retirees with pension income not subject to sufficient withholding, and anyone who receives bonuses, commissions, or other income without adequate tax withholding.
If you earn employment income with proper withholding but also have self-employment or rental income, you may or may not need installments depending on whether your net tax owing exceeds $3,000.
When Are Installments Due?
Individual tax installments are due quarterly on March 15, June 15, September 15, and December 15 each year.
For corporations, installment requirements and due dates differ. Most corporations must make monthly installments by the end of each month, though small Canadian-Controlled Private Corporations (CCPCs) may qualify for quarterly installments.
At BBS Accounting, we ensure our clients understand their specific installment schedule based on their business structure.
How to Calculate Installment Amounts
The CRA provides three methods for calculating installments. You can choose whichever method results in the lowest installments without penalty, though understanding each method is important.
Method 1: No-Calculation Option
The simplest method is paying the amounts CRA specifies in your installment reminder notices. The CRA calculates these based on your prior two years’ returns and sends you notices before each installment deadline.
The first two installments (March and June) equal one quarter of your net tax owing from two years prior. The last two installments (September and December) equal one half of the difference between last year’s net tax owing and the March/June installments.
Example: Your 2024 net tax owing was $10,000 and your 2025 net tax owing was $12,000. CRA’s no-calculation method requires March and June 2026 installments of $2,500 each ($10,000 / 4), and September and December installments of $3,500 each ([($12,000 – $5,000) / 2]).
This method is safe—you won’t face penalties if you pay these amounts—but may not be optimal if your income decreased significantly.
Method 2: Prior-Year Option
Calculate each installment as one quarter of your total net tax owing from the prior year.
Using the example above, if your 2025 net tax owing was $12,000, each 2026 installment would be $3,000 ($12,000 / 4).
This method works well if last year’s income is similar to this year’s expected income.
Method 3: Current-Year Estimate Option
Estimate your current year’s net tax owing and divide by four, paying equal quarterly installments.
If you expect 2026 net tax owing of $16,000, each installment would be $4,000.
This method is useful if your income increased significantly from prior years, allowing you to pay installments matching your actual liability and avoiding a large balance owing at filing time.
However, if you underestimate and pay too little, you’ll owe installment interest and potentially penalties. This method requires careful income projection.
At BBS Accounting, we help clients estimate current-year income and calculate appropriate installments using the method that optimizes cash flow while avoiding penalties.
Installment Interest and Penalties
If you don’t make required installments or pay too little, the CRA charges installment interest. The rate changes quarterly and is typically around 8-10% annually (the prescribed interest rate plus 4%).
Installment interest is calculated on the deficiency for each quarter. Even if you pay your full balance owing when you file, you’ll still owe interest for the installment period if installments were insufficient.
Example: Your September 15 installment should have been $3,000 but you paid nothing. From September 15 to when you file (say April 30), that’s approximately 7.5 months. At 10% annual interest, you’d owe approximately $190 in interest on that $3,000 deficiency ($3,000 × 10% × 7.5/12).
This interest is charged even if you file on time and pay your total balance owing. It’s specifically for late or insufficient installments, separate from late-payment interest on balances owing.
Additionally, if the CRA calculates installment interest exceeding $1,000, they may charge an installment penalty.
The CRA also credits you for installments paid early or in excess, providing contra-interest that offsets some installment interest if you were deficient on other quarters.
How to Make Installment Payments
Several methods are available for paying CRA installments:
Online through your bank: Most Canadian banks allow CRA payments through online banking. Add CRA as a payee, select “Tax Installments” as the payment type, and use your Social Insurance Number as the account number. This is the most common method and provides immediate confirmation.
Pre-authorized debit through CRA My Account: Set up recurring or one-time pre-authorized debits from your bank account. The CRA withdraws the amount on the date you specify.
In person at your bank: Bring your installment remittance voucher (if CRA sent one) or provide your SIN and specify the payment is for tax installments.
By mail with a cheque: Send a cheque to the CRA with your SIN and specify it’s for installments. Allow sufficient time for mail delivery before the due date.
Through CRA My Account: Make payments directly through the online portal using your banking information.
At BBS Accounting, we recommend online banking or pre-authorized debit for convenience and to ensure payments are received by due dates.
Special Considerations for Ontario Business Owners
Self-employed Ontario residents must consider both federal and Ontario provincial tax when calculating installments. Your Notice of Assessment shows combined amounts.
If you’re incorporated, corporate installments are separate from personal installments. Your corporation makes its own installments based on corporate taxes owing, while you personally make installments based on your personal taxes owing (including taxes on salary or dividends from the corporation).
Many business owners neglect personal installments, focusing only on corporate taxes. At BBS Accounting, we ensure both corporate and personal installment obligations are met.
Strategies to Minimize Installment Burden
Several strategies can reduce installment requirements:
Increase tax withholding at source: If you have employment income in addition to self-employment income, you can request your employer withhold additional tax from your paycheque. File a TD1 form indicating you want extra withholding. This reduces your net tax owing and potentially eliminates installment requirements.
Pay yourself a salary from your corporation: If incorporated, paying yourself a salary (rather than dividends only) creates withholding at source on the salary, reducing your personal net tax owing and potentially your installment requirements.
Make voluntary tax payments: You can make payments to CRA any time throughout the year, not just on installment due dates. Some people prefer monthly payments to match their cash flow, even though quarterly is required.
Maximize RRSP contributions: Contributing to an RRSP reduces your taxable income and thus your tax liability, reducing required installments. Make RRSP contributions by the March 2 deadline for the prior year, which may reduce the year’s installment requirements.
Time your income strategically: If you control when you invoice clients or realize investment income, timing these for early in the year means more withholding time, while timing for late in the year means less time before filing.
What Happens If You Don’t Pay Installments?
If you don’t make required installments, several consequences follow:
You’ll owe installment interest as described above, which is not tax-deductible and simply increases your tax cost. If the interest exceeds $1,000, the CRA may also assess an installment penalty equal to 50% of the excess interest over both $1,000 and 25% of the installment interest that would have arisen if you’d used the no-calculation option.
This penalty is complex but essentially penalizes egregious underpayment of installments.
Additionally, failure to pay installments can lead to CRA collections action. While less common than for tax balances owing, persistent failure to pay installments may result in garnishment or liens.
Most importantly, not paying installments creates cash flow problems at filing time. If you don’t pay quarterly, you’ll face a large tax bill when you file. Many self-employed individuals struggle with this, owing $10,000-20,000 or more at filing time when they haven’t set aside funds.
Installments vs. Withholding Tax
Understanding the difference between installments and withholding is important. Withholding tax is deducted automatically from employment income, pensions, and certain other payments. You never see this money—it goes directly to CRA.
Installments are payments you must proactively make to CRA. Nobody takes them from you automatically. The burden is on you to calculate amounts and make payments.
Both accomplish the same goal—paying taxes throughout the year rather than all at once—but installments require much more self-discipline.
Farmers and Fishers Special Rules
Farmers and fishers have different installment rules. They only need to make one installment per year, due December 31, equal to two-thirds of their net tax owing for the current or prior year.
This recognizes that agricultural income is seasonal and concentrated in the fall harvest period.
First-Time Installment Payers
If 2026 is your first year requiring installments, you may not receive installment reminder notices from CRA until partway through the year. Don’t wait for notices—calculate and pay installments based on your prior year’s return.
The CRA catches up eventually and starts sending notices, but the obligation exists whether you receive notices or not.
At BBS Accounting, we proactively identify clients who will need installments and ensure they start paying even before receiving CRA notices.
Record Keeping
Keep records of all installment payments including dates, amounts, and confirmation numbers. If CRA later claims installments weren’t made or were insufficient, your records prove otherwise.
Your CRA My Account shows your installment payment history, but maintaining your own records provides backup.
Year-End Strategies
As year-end approaches, review your installment situation with BBS Accounting. If you significantly overpaid installments (perhaps due to lower income than expected), you’ll receive a refund when you file. Consider whether to reduce your fourth installment or pay it and get a larger refund.
If you underpaid installments, calculate the deficiency and consider making an additional payment before year-end to minimize interest.
Some business owners make a substantial payment in late December that counts toward the December 15 installment, then adjust their final installment based on year-end tax planning strategies.
Moving Forward in 2026
For 2026, review your 2025 Notice of Assessment to determine if installments are required. If your 2025 net tax owing exceeded $3,000 and your 2024 net tax owing also exceeded $3,000, you must make 2026 installments.
Calculate installments using the method that works best for your situation. Set up automatic payments or calendar reminders so installments are never missed.
If your income fluctuates significantly year-to-year, consider using the current-year estimate method, but be conservative in your estimates to avoid underpayment.
Working with BBS Accounting
At BBS Accounting in Toronto, we handle installment calculations and planning for our clients. We’ll determine which calculation method minimizes your payments, set up payment schedules that match your cash flow, monitor your income throughout the year and adjust installments if needed, and ensure you’re never surprised by unexpected installment requirements.
For incorporated clients, we coordinate both corporate and personal installment obligations, ensuring nothing is overlooked.
Our proactive approach means you’re never scrambling at deadline time or facing unnecessary interest charges.
The Bottom Line
Tax installments are a fact of life for self-employed Ontario residents and others with income not subject to withholding. While they require attention and discipline, proper management of installments prevents cash flow problems and avoids unnecessary interest charges.
Treat installments as a regular business expense, setting aside funds quarterly just as you would for rent or payroll. This prevents the common problem of spending money that should have gone to installments, then facing a large tax bill with insufficient funds.
Contact BBS Accounting today to review your installment requirements for 2026 and develop a payment strategy that keeps you compliant while optimizing your cash flow. We’re here to make tax obligations as painless as possible for Ontario entrepreneurs and investors.