While virtually every working Canadian pays income taxes, the process by which those taxes are collected throughout the year is largely invisible to the taxpayer. That’s certainly the case for employees, because income taxes (and other statutory deductions like Canada Pension Plan contributions and Employment Insurance premiums) are, as required by law, deducted by the employer from every dollar of salary or wages paid, and remitted to the federal government on the employee’s behalf. The net amount remaining after such deductions is then paid to the taxpayer. Tax amounts withheld and remitted in this way are recorded on the employee’s T4 slip for the year, and credit for the total of tax amounts paid through such payroll deductions throughout the year is then claimed by the employee on their annual return.
While no one likes having to pay taxes, having those taxes paid “off the top” in such an automatic way is, relatively speaking, painless. Such is not the case, however, for the millions of Canadians who pay their income taxes, not through payroll deduction, but by instalment. Those Canadian taxpayers will be receiving an “Instalment Reminder” from the Canada Revenue Agency (CRA) sometime in the next few weeks. That Reminder will set out the amount of instalment payments of income tax to be paid by the recipient taxpayer by March 17 and June 16 of this year. (The actual deadlines are March 15 and June 15 but where, as is the case this year, those dates fall on a weekend, the deadline is extended to the first subsequent business day.)
Receiving an “Instalment Reminder” from the CRA won’t be a surprise for many recipients who have paid tax by instalments during previous tax years. For others, however, the need to make tax payments by instalment is a new and unfamiliar concept. Even the name of the form is potentially confusing, as receiving an “Instalment Reminder” rather than an “Instalment Requirement” or an “Instalment Amount Owing” may leave the taxpayer wondering just what their obligations and options are with respect to making those payments.
The CRA’s decision to send an Instalment Reminder to certain taxpayers isn’t an arbitrary one. Rather, an Instalment Reminder is generated when sufficient income tax has not been deducted from payments made to that taxpayer throughout the year. Put more technically, an instalment reminder will be issued by the CRA where the amount of tax which was or will be owed when filing the annual tax return is more than $3,000 in the current (2025) tax year and either of the two previous (2023 or 2024) tax years. Essentially, the requirement to pay by instalments in 2025 will be triggered where the amount of tax withheld from the taxpayer’s income throughout the year is at least $3,000 less than their total tax owed for 2025 and either 2023 or 2024. For residents of Québec, that threshold amount is $1,800.
Such obligation arises on a regular basis for those who are self-employed, of course, and generally for those whose income is largely derived from investments. The group of recipients of a tax Instalment Reminder often also includes retired Canadians, especially the newly retired, for two reasons. First, while most employees have income from only a single source – their paycheque – retirees often have multiple sources of income, including Canada Pension Plan (CPP) and Old Age Security (OAS) payments, private retirement savings, and, sometimes, employer-provided pensions. And while income tax is deducted automatically from one’s paycheque, that’s not the case for most sources of retirement income. Relatively few new retirees realize that it’s necessary to make arrangements to have tax deducted “at source” from either their government-source income (like CPP or OAS payments) or private retirement income, like pensions or optional registered retirement income fund withdrawals, and to make sure that the total amount of those deductions is sufficient to pay the total tax bill for the year. It is that group of individuals who may be surprised and puzzled by the arrival of an unfamiliar “Instalment Reminder” from the CRA. However, no matter what kind of income a taxpayer has received, or why sufficient tax has not been deducted at source, the options open to a taxpayer who receives such an Instalment Reminder are the same.
First, the taxpayer can pay the amounts specified on the Reminder, by the March and June payment due dates. Choosing this option will mean that the taxpayer will not face any interest or penalty charges, even if the amount paid by instalments throughout the year turns out to be less than the taxes actually payable for 2025. If the total of instalment payments made during 2025 turn out to be more than the taxpayer’s total tax liability for the year, they will of course receive a refund when the annual tax return is filed in the spring of 2026.
Second, the taxpayer can make instalment payments based on the amount of tax which was payable for the 2024 tax year (which will, of course, be known once the return for 2024 is completed). Where a taxpayer can make an accurate estimate of what their income will be during 2025, and neither that income amount nor their available deductions and credits has changed significantly between 2024 and 2025, the likelihood is that total tax liability for 2025 will be slightly less than it was in 2024, as the result of the indexation of both income tax brackets and tax credit amounts.
Third, the taxpayer can estimate the amount of tax which they will owe for 2025 and can pay instalments based on that estimate. Where a taxpayer’s income will decrease significantly from 2024 to 2025, such that their tax bill will also be substantially reduced, this option can make the most sense.
Taxpayers who wish to pursue the second or third options outlined above can find a detailed outline of the federal income tax rates, brackets, and tax credit amounts, and the provincial income tax rates and brackets which will apply for 2025, on the CRA website at https://www.canada.ca/en/revenue-agency/services/tax/individuals/frequently-asked-questions-individuals/adjustment-personal-income-tax-benefit-amounts.html and Income tax rates for individuals - Canada.ca.
No interest or penalty amounts will be assessed against a taxpayer who chooses to pay instalment amounts different than those listed on the Instalment Reminder, as long as those instalments are made by the required due dates and there is no additional tax payable when the return for the 2025 tax year is filed in the spring of 2026 – in other words, as long as their estimate of tax payable for the year is at least as much as, or more than, the actual amount payable, and such payments are made on time. However, should instalments paid have been late or insufficient, the CRA will impose interest charges, at rates which are higher than current commercial rates. (The rate charged for the first quarter of 2025 – until March 31, 2025 – is 8%.) As well, where interest charges are levied, such interest is compounded daily, meaning that on each successive day, interest is levied on the previous day’s interest. It’s also possible for the CRA to levy penalties for overdue or insufficient instalments, but that is done only where the amount of instalment interest charged for the year is more than $1,000.
Most Canadian taxpayers are understandably disinclined to pay their taxes any sooner than absolutely necessary. However, ignoring an Instalment Reminder is never in the taxpayer’s best interests. Those who don’t wish to involve themselves in the intricacies of tax calculations can simply pay the amounts specified in the Reminder. The more technical-minded (or those who want to ensure that they are paying no more than absolutely required and are willing to take the risk of having to pay interest on any shortfall) can avail themselves of the second or third options outlined above.
Detailed information on the instalment payment system for 2025, and the calculation and payment options available to taxpayers, can be found on the CRA website at https://www.canada.ca/en/revenue-agency/services/payments-cra/individual-payments/income-tax-instalments.html.