Every resident of Canada is required to pay income tax on their worldwide income. And while the vast majority of Canadians do so when and as required (with varying degrees of reluctance), very few understand how the amount of tax they must pay is calculated, or the system by which such tax payable is remitted to the federal taxation authorities.

That’s particularly true for employed Canadians, who have tax deducted from their paycheques by their employer and remitted to the Canada Revenue Agency (CRA) on their behalf. When those taxpayers file a tax return for the year, all tax amounts remitted to the CRA on their behalf are credited against their total income tax bill for the year. The goal is for amounts withheld from the taxpayer’s paycheques throughout the year to be at least the amount of income tax actually owed for that year. In most cases, the system works, with the majority of taxpayers who file a return for the year receiving a tax refund.

While this “deduction at source” system generally works well, it is also a system which is largely invisible to the taxpayer, requiring virtually no action on their part. That’s not the case, however, for taxpayers who pay income tax by instalment payment, and some time during the month of February, millions of those taxpayers will receive an Instalment Reminder from the CRA, in which tax instalment amounts to be paid on March 16 and June 15, 2026 are set out.

The CRA’s decision to send an Instalment Reminder to particular taxpayers isn’t an arbitrary one, although it may seem so to the taxpayers who are unfamiliar with the instalment payment rules. Under those rules, the CRA issues an Instalment Reminder to a particular taxpayer where the amount of tax which is withheld from that taxpayer’s income throughout the year is not sufficient to cover the amount of income tax which they are actually required to pay for that year, leaving a balance owing when the return for the year is filed.

Put more technically, an Instalment Reminder is issued by the CRA when the amount of tax which was or will be owed by the taxpayer on filing is more than $3,000 in the current (2026) tax year and either of the two previous (2025 or 2024) tax years. Essentially, the instalment payment system for 2026 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 owing for 2026 and for either 2025 or 2024. For residents of Québec, that threshold amount which triggers the issuance of a federal Instalment Reminder is $1,800.

There’s a lot about the Instalment Reminder received by taxpayers that is confusing. There is no indication of how the CRA arrives at the numbers which are listed as instalment payments to be made in March and June 2026 and, in addition, the notice is called an Instalment “Reminder” and not an actual requirement to pay, or a bill from the CRA.

Taxpayers who receive an Instalment Reminder actually have three options when it comes to deciding how to respond. Each of those options has its own benefits and disadvantages, as outlined below.

No-Calculation Option

First, the taxpayer can simply pay the amounts set out in the Instalment Reminder, in full, and on or before the required dates. A taxpayer who does so will not face any interest or penalty charges, even if the amount remitted by way of instalment payments turns out to be less than the taxpayer’s actual tax payable for the year.

There are, however, circumstances in which paying the amounts specified on the Instalment Reminder might not be the best course of action. The amounts set out in the Reminder are based on the CRA’s best estimate of the taxpayer’s actual tax payable for the year, based on prior year income and taxes. Where tax payable for 2026 is likely to be significantly less (for instance, where the taxpayer recently retired and their income for 2026 will be less than income earned in the last year or two of employment) another approach can make more sense. A taxpayer who does not want to pay the amounts set out in the Instalment Reminder has two other options, as outlined on the CRA website.

Prior-Year Option

This option is best if the taxpayer’s 2026 income, deductions, and credits will be similar to such amounts for 2025, but significantly different from those in 2024. In that case, the taxpayer can determine 2026 tax instalment amounts based on the tax payable for 2025, as calculated on their return for that year.  As the first instalment for 2026 is not due until March 16, many taxpayers will already have completed and filed their return for 2025 and will know the exact amount of their tax payable for that year. (The forms for completing the return for 2025 are available now on the CRA website at https://www.canada.ca/en/revenue-agency/services/forms-publications/tax-packages-years/general-income-tax-benefit-package.html, and many of the software packages used to complete a return for 2025 can now be downloaded or purchased.)  

Current-Year Option

This option is best if the taxpayer’s 2026 income, deductions, and credits will be significantly different from those in both 2025 and 2024 – as, for example, a taxpayer who retired at the end of 2025.

Using this option, the taxpayer determines the amount of instalment payments to be made based on their estimated current year (2026) tax payable. The CRA provides an online calculator (available at calculation chart for instalment payments for 2026 (PDF, 94 KB)) which can be used to assist in making that determination.

While the no-calculation option – simply paying the amounts set out in the Instalment Reminder by the due dates – is entirely risk-free, that’s not necessarily the case with the prior-year and current-year options. Should the taxpayer’s calculations with respect to the amount of income tax which will be owed for the 2026 tax year be inaccurate, meaning a shortfall in instalment payments, the CRA will impose interest charges. For the current quarter (January 1 to March 31, 2026) the interest rate charged by the CRA is 7%, and all such interest amounts levied are compounded daily. The CRA can also impose penalty charges for insufficient instalments, but such penalty charges are levied only where the amount of instalment interest charges for the year is more than $1,000.

Taxpayers who don’t want to risk having to pay interest charges, or who simply don’t want to involve themselves in calculating tax payable amounts for the year, can simply pay the amounts listed in the Instalment Reminder issued by the CRA. 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 2026, 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/payments-cra/individual-payments/income-tax-instalments.html.

The information presented is only of a general nature, may omit many details and special rules, is current only as of its published date, and accordingly cannot be regarded as legal or tax advice. Please contact our office for more information on this subject and how it pertains to your specific tax or financial situation.