A corporation generally must pay tax instalments if its net federal tax owing exceeds $3,000 in the current year or either of the two preceding years. Most corporations pay monthly; an eligible small CCPC with a clean compliance history may qualify for quarterly instalments instead. New corporations are exempt in their first taxation year. Underpaying triggers instalment interest at the CRA's prescribed rate — 7% as of the third quarter of 2026 — and a penalty if that interest exceeds $1,000 for the year.
Key takeaways
- Instalments are required once net tax owing exceeds $3,000 in the current or a prior year.
- New corporations are exempt from instalments in their first taxation year.
- Most corporations pay monthly; small eligible CCPCs can qualify for quarterly.
- You can calculate instalments using the current-year, prior-year, or combined method.
- Underpayment interest runs at CRA's prescribed rate (7% in Q3 2026), plus a possible penalty over $1,000.
Instalments catch a lot of newly profitable corporations off guard — you file a strong first or second year, and suddenly the CRA expects you to start prepaying next year's tax throughout the year rather than in one lump sum. Here's how the system actually works.
What instalments are, and who must pay
A tax instalment is a periodic prepayment toward your corporation's tax bill for the current year, rather than paying it all at once when you file. You're generally required to pay instalments if your net federal tax owing exceeds $3,000 in the current taxation year or in either of the two immediately preceding years. If your tax owing has stayed at or below that amount, you can simply pay your balance in full by the due date instead.
Monthly vs. quarterly instalments
By default, corporations that owe instalments pay monthly. Some smaller corporations can instead pay quarterly, which frees up cash flow. To qualify as an eligible small CCPC for quarterly instalments, a corporation generally needs, together with any associated corporations:
- Taxable income at or below the small business limit ($500,000) in the current or prior tax year
- Taxable capital employed in Canada at or below $10 million
- A perfect compliance history — all GST/HST, payroll source deduction, CPP and EI remittances made on time, and all required returns filed on time, over the preceding 12 months
Slip on any of these conditions during the year and the CRA can move you back to monthly instalments going forward.
Three ways to calculate your instalments
The CRA gives you a choice of calculation method, and you can pick whichever produces the lowest instalments for your situation (subject to interest if your estimate turns out too low):
- Current-year method: base each instalment on your best estimate of the current year's tax payable, divided across the year's instalments.
- Prior-year method: base each instalment on your prior year's tax payable, divided evenly across the year.
- Combined (no-calculation) method: the CRA's default — early instalments are based on your second-preceding year's tax, and the remaining instalments are adjusted to bring the total in line with your prior year's tax payable.
Growing businesses often prefer the prior-year or combined method, since it's predictable and avoids guessing at current-year income. A business expecting a much weaker year may prefer the current-year method to avoid overpaying.
Due dates
Monthly instalments are due on the last day of each month of your tax year. Quarterly instalments, for eligible small CCPCs, are due on the last day of each quarter. Instalments are separate from your balance-due date and your T2 filing deadline — see our T2 deadlines and penalties guide for how those interact.
What happens if you underpay
If your instalments fall short of what you should have paid, the CRA charges instalment interest, compounded daily, at its prescribed rate for overdue amounts — currently 7% as of the third quarter of 2026 (this rate is reviewed and can change quarterly). If the resulting instalment interest for the year works out to more than $1,000, the CRA can also assess an instalment penalty on top of the interest. Both are avoidable by remitting on time and choosing a calculation method that matches your actual results.
The bottom line
If your corporation is consistently profitable, instalments aren't optional — but they're predictable once you know the $3,000 trigger, your monthly-vs-quarterly status, and which calculation method fits your cash flow. We calculate and track instalments for our corporate tax clients year-round so nothing is a surprise at year-end. Check current deadlines any time on our CRA tax deadlines page.
Founder of EverStone CPA, a family-owned Abbotsford firm, and a member of the Chartered Professional Accountants of British Columbia (CPABC). Sunny works with incorporated contractors and small business owners across Canada on tax, bookkeeping and advisory. More about Sunny →
This article is general information, not tax advice for your specific situation. Prescribed interest rates change quarterly — confirm the current rate and your instalment obligations with the CRA or with us.
Frequently asked questions
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