Instalment payments represent ongoing tax payments to the government throughout the year.  They are usually required if an individual’s ‘net tax owing’ was greater than $3,000 (known as the ‘instalment threshold’) in either of the previous two taxation years.  Typically, this would occur when regular tax withholding payments throughout the year were insufficient (See ITA 156.1(2) for further details).

If an individual is required to make instalments, the payments will be made quarterly on March 15th, June 15th, September 15th and December 15th.  As per ITA 156(1) Individuals (other than farmers and fishermen) can calculate their instalment payments using any of the following three methods:

1) Current year option: The quarterly installments are based on the individual’s current year estimated tax payable.

2) Prior year option: The quarterly installments are based on the individual’s tax payable for the previous year (i.e. you would base your 2025 installments on your tax payable in 2024)

3) No-calculation option: The first two quarterly instalments are based on the tax paid in the second preceding taxation year (2023 is the second preceding year for 2025) and last two instalment payments are based on the tax paid in the preceding taxation year. This calculation is explained in more detail below.

Why are there three options available?  Largely this has to do with the problems in guessing or estimating the instalment amounts using the current year or prior year methods.

The individual can choose any of the available options according to his/her discretion.  Typically the taxpayer would choose the option with the least tax paid up front.

Under the ‘no-calculation’ method the instalments are determined as follows (for 2025):

• (a) an amount equivalent to 1/4 of the installment base of the second preceding taxation year (2023) is to be paid on March 15, 2025 and June 15, 2025. And

• (b) for the installments to be paid on September 15, 2025 and December 15, 2025, the amounts already paid under (a) are deducted from the total tax paid in the preceding taxation year (2024). The resulting amount is then spread over the last two installments.

For example, John’s estimated tax payable for 2025 is $16,881. He paid $11,250 for 2024 and $9,750 for 2023 as tax. The calculation for tax installments payable under three available options for 2025 is as follows:

Note, under option #2 and option #3 John would need to make a final payment of $5,631 on April 30^th, 2026 to get the total payments for the year to equal his overall tax liability (assuming he ultimately owed $16,881 for the year).

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