The three ways to calculate CRA instalments — and the only one with a guarantee

Once you're in the instalment system, the CRA gives you a genuine choice: three different ways to set the size of your quarterly payments. Pick well and you either eliminate interest risk entirely or keep thousands of dollars in your own hands longer. Pick badly and a 7% daily-compounding clock runs from every due date.

Option 1: No-calculation — the one with the guarantee

Pay exactly the amounts printed on your CRA reminders, on time, and you owe zero instalment interest — even if the amounts turn out to be too low. Any shortfall just becomes part of your balance at tax time, interest-free.

The amounts aren't mysterious. The CRA builds them from your past returns:

• February reminder (March 15 and June 15 payments): each is ¼ of your 2024 net tax owing — the most recent return the CRA had assessed at the start of the year.
• August reminder (September 15 and December 15): your 2025 net tax owing, minus the two payments already asked for, split in half — so by December you've paid exactly your 2025 total.

That's why the September and December amounts often jump: if 2025 was a better year than 2024, the back half catches up.

Option 2: Prior-year — simple, slightly sharper

Take your 2025 net tax owing (plus self-employed CPP and any voluntary EI) and pay a quarter of it each date. If 2025 and 2024 were similar, this lands close to the no-calculation amounts anyway. Where it helps: 2024 was unusually high — a one-time capital gain, say — and the February reminder amounts are inflated by it.

The catch: the guarantee is gone. Pay on this basis and come up short against what the no-calculation option would have collected, and interest can apply.

Option 3: Current-year — the cash saver with teeth

Estimate your 2026 net tax owing yourself and pay a quarter of it each date. This is the right call when income is clearly dropping — you retired mid-year, lost a big client, sold the rental that generated the gains. Why send the CRA quarterly payments sized to an income you no longer earn?

But underestimate and the CRA charges instalment interest — 7% at the current prescribed rate, compounded daily — on each shortfall from its due date. The rate resets every quarter, so the meter can climb.

A worked example

Say your net tax owing was $8,000 in 2024 and $12,000 in 2025, and 2026 looks like more of the same:

• No-calculation: $2,000 on March 15 and June 15, then $4,000 on September 15 and December 15. Total $12,000, zero interest risk.
• Prior-year: $3,000 × 4. Same $12,000, smoother — but no guarantee.
• Current-year at a $9,000 estimate: $2,250 × 4. Keeps $3,000 in your pocket — and if 2026 actually comes in at $12,000 again, the CRA charges interest on every quarterly shortfall.

How to choose

Income flat or rising → take the reminder amounts. The no-calculation guarantee is the only free insurance the CRA offers, and any overpayment comes back as a refund.

Income clearly falling, and you can show your math → current-year option, estimated conservatively. Pad the estimate; the downside of paying slightly more for a few months is small next to a 7% daily-compounded charge.

2024 was a freak year → prior-year option smooths out the distortion.

One more safety valve: the CRA calculates interest using whichever option produces the least interest, and overpaying or paying early earns credit interest that offsets charges on a later shortfall in the same year. The system is more forgiving than it looks — as long as the money shows up.

Your starting point for all three is knowing the underlying number. Your take-home pay at any income level shows the tax the CRA is expecting; what nobody withholds is what these payments are pre-paying. The instalment calculator then lays all three options side by side on your own figures, date by date.

The takeaway

The reminder amounts are the CRA's offer of a deal: pay these, on time, and interest can never touch you. Take the deal unless your income is demonstrably down — and if you do go your own way, estimate like someone who knows the penalty for optimism is 7%, compounded daily.