When Are Income Tax Instalments Due?

Canadian taxpayers may have to pay income tax in instalments. Income earned through self-employment, rental property, investments, certain pensions, and multiple jobs can lead to this situation.

What is tax withheld?

Tax withheld is an amount an employer or payer withholds from a salary or payment, to remit directly to the government. Examples of withholding are listed in the Income Tax Act's Section 153(1).  Employers calculate how much to withhold based on amounts reported on the federal and provincial/territorial TD1 form. An employee who earns commission income may also use the TD1X form. Those who wish to reduce amounts withheld at the source can fill out a T1213 form.

Who has to pay tax instalments?

Those who earn income that has no tax withheld or don't have enough tax withheld may pay tax in instalments. This could include the self-employed, real estate investors and more.

Who is exempt from paying tax instalments?

An incorporated new business is not required to make instalment payments until the second year of operation. You should pay first-year income tax on or before the due date. Income from carved-out property is an exception, and taxes on such income, reported in Part XII.1 of the income tax return, are paid in instalments. Carved-out income can include amounts earned through natural resources such as gas or oil, or head leases.  Under the Income Tax Act's 156(2), no instalments are required if:

 
• Farming or fishing constitute the main source of income and the net tax owing for that year or either of the two preceding years is within the instalment threshold
 
• Net tax owing for that year or for each of the two preceding years are within the threshold
 
• A graduated rate estate applies for that year.

Instalment payments are not required if the tax year is shorter than a month, or shorter than a quarter for an eligible CCPC.