Your first instalment year: why the CRA suddenly wants quarterly money

The letter arrived because two things happened at once, and only one of them was your doing. Nothing is withheld from a dividend, so no tax left your hands during the year. And your net tax owing crossed C$3,000 in a year the CRA has now assessed. Personal instalments are generally required once net tax owing is more than C$3,000 (C$1,800 for Quebec residents) in the current year and in either of the two years before it — both conditions, not either one. What follows is a calculation, not an assessment, and there are three ways to do that calculation. Which one you use decides what a wrong guess costs.

The trigger looks backward, which is why it feels sudden

Read the both-condition again and the timing falls out of it. The first year you personally owe real money, the second condition fails: the two years behind you were quiet, because salary had tax withheld from every pay, or because the corporation was not paying you much yet. So no instalments are required, nothing goes out during the year, and the whole bill settles on April 30. The following year the same income has a qualifying year behind it, and you are in the system.

Nothing about the business changed between those two years. The CRA needed one assessed year to point at, and now it has one. How much to set aside works the cash-flow side of this. What follows is the paperwork side — the letter, the options, and the interest that attaches to the wrong one.

The reminder is a calculation, and it runs on stale numbers

Two reminders go out a year, in February and in August, each computed from returns already filed. Nothing is owed because a reminder arrived; it is an estimate of a year that has not finished happening.

The February one covers March 15 and June 15. It has to be built before your most recent return is assessed, so it generally reaches back to the year before that one. The August one covers September 15 and December 15, by which point the CRA holds your latest assessment, and it trues the year up: the full requirement, less whatever the spring dates already asked for.

For a first-timer that produces a lopsided year. The spring amounts were computed from a year in which you owed almost nothing, so they come out small or nil — often no February letter is issued at all. Then the August reminder carries the whole year in two payments.

Three ways to calculate, producing three different numbers

• The no-calculation option: pay the amounts printed on the reminder, on the printed dates. The CRA did the arithmetic from returns it has already assessed. Pay them in full and on time and you are generally protected from instalment interest even if the year finishes higher.
• The prior-year option: a quarter of last year’s net tax owing at each of the four dates. This is the option for a year that resembles the year just ended but not the year before it — which is exactly the year the CRA’s spring figures are stale for.
• The current-year option: a quarter of what you estimate you will owe for the year in progress. The only option that can be right in a year where income falls, and the only one that can be expensively wrong.

If interest ever gets calculated, the CRA works it out under each of the three and charges the least. That sounds like it removes the risk. It does not, because the comparison runs on the year’s actual numbers — which is the thing you did not have in March.

A worked example: two tax years landing in one calendar year

Illustrative, round numbers, December 31 year-end. A consultant paid by salary through 2025 and by dividends from 2026 forward. The net tax owing figures below are assumed rather than computed — no province, no bracket, no dividend arithmetic — because the point is the sequence of dates, not the size of the bill.

Through 2025, income tax came off every pay. The 2025 return showed C$400 of net tax owing, the small residue withholding tends to leave. In 2026 the salary stopped and dividends replaced it. Nothing was withheld all year, and the 2026 return, filed the following spring, showed C$26,000 owing.

C$52,000 leaves in eight months, on an income that produced one C$26,000 bill. Nothing went wrong and no date was missed. The reminder had nothing to calculate from until the 2026 assessment existed, so a four-payment year compressed into two autumn ones.

Now change one fact. Say the consultant loses the largest client in early 2027 and expects the year to finish at half, around C$13,000 of net tax owing. The current-year option prices the instalments against that estimate rather than against 2026, and roughly C$13,000 stays in the account through the year. If a December project lands and the year finishes at C$26,000 after all, interest runs on each shortfall from that instalment’s own due date rather than from April 30. Same letter, same dates, different bet.

Instalment interest is the price of the option, not of being late

Miss an instalment or pay it short and interest runs on the shortfall from that instalment’s due date, at a prescribed rate the CRA resets quarterly, compounded daily. Once instalment interest is large enough, a further penalty applies on top. Nothing announces it while it accrues: no return is filed for an instalment and no notice arrives, so the charge generally first appears on the notice of assessment for the year — a year after it started running.

The asymmetry runs the other way too. Instalments paid early or in excess generally earn offsetting credit interest that can absorb interest on a later shortfall in the same year, which is the argument for guessing high rather than low.

One mechanical trap is worth knowing before December. A personal instalment paid into your corporation’s tax account does not land on your personal instalment record. Getting it moved means a call and a transfer request, and whether it keeps its original payment date is not something to find out on December 16.

Your corporation runs its own clock

Corporate instalments are a separate obligation on separate dates, and they can begin the same year yours do. Most corporations pay monthly, due the last day of each month of the tax year; eligible small CCPCs with a clean compliance history can generally pay quarterly instead. They are generally not required where total tax payable for the year is C$3,000 or less, and a first corporate year generally escapes for want of a prior-year base to calculate from. The deadlines guide works the corporate version of this compression through with the arithmetic attached.

What Cadence does

We set the instalment option before March rather than reading the August letter to find out what it was. The base comes off the returns we prepare, the corporate one and yours in the same file, so the figure is calculated rather than copied from a reminder built on a year you have already moved past. That calculation travels with the annual returns and is in every package; the C$3,000 Compliance tier is those returns. Where the current-year option is the right one, it needs a forecast that gets re-checked when the year changes shape, and that is year-round planning inside the year-round packages. Consultants and agency owners meet this in their first dividend year more often than anyone, because the year they change how they are paid is usually the year the income moves as well. Quebec residents run a second instalment stream through Revenu Québec on its own schedule; some specialized provincial, Quebec or multi-jurisdictional matters are accepted based on fit and the capabilities required, and we answer that before onboarding rather than during it.