Paying Income Tax in Installments: A Guide for Physicians

Physicians who earn income not subject to withholdings, meaning no deductions have been made by the payer and forwarded to the CRA on their behalf, often need to pay their income tax in advance through tax installments. For instance, this applies to self-employed physicians. The Canada Revenue Agency (CRA) sends out installment notices to inform individuals about these mandatory payments. It’s crucial to monitor these installments to steer clear of significant interest and penalties. To determine if you need to pay in installments, check if your net tax due for the current year and either of the two previous tax years exceeds $3,000. However, the CRA has an internal policy that exempts those meeting this criterion for the first time in the current year. For example, a physician who started their self-employment journey in 2021 would only need to start paying installments upon receiving a reminder in August 2023, which would cover payments for September and December of 2023.
There are three methods to calculate these installment payments:
- No-calculation Option: This method, used by the CRA for its reminders, combines the net tax due for the second last year and the year immediately before. The first two installments (for March and June 15) are based on a quarter of your tax liability from two years prior. The next two installments (for September 15 and December 15) are half of the previous year’s tax liability, minus the total of the first two installments.
- Prior-year Option: This method calculates installments based on the net tax due for the year immediately before. It only considers the total tax liability of the previous year, dividing it into four equal quarterly payments. This option can reduce your installment amount if your tax liability was lower in the previous year compared to two years ago. However, since the first installment is due on March 15th and the previous year’s taxes are due on April 30th, determining the prior year’s tax liability early is essential.
- Current-year Option: This method estimates the net tax due for the current year, dividing the total by four for quarterly payments. The challenge here is that if your actual tax ends up being higher than your estimate, you might incur interest and penalties on the installment shortfall.
The CRA sends out Instalment Reminder Notices twice a year, in February and August. If you don’t receive one, you’re not obligated to make installments for that year. The reminders in February cover payments for March 15th and June 15th, while those in August are for September 15th and December 15th.

By adhering to the payment structure in the Instalment Reminder Notices, you can avoid interest and penalties. Using the prior-year option accurately also ensures you won’t face any additional charges. However, if you opt for the current-year method and expect a decrease in your earnings from the previous year, you might face interest and potential penalties if your actual tax liability is more than the installments you’ve paid. Significant shortfalls, where the installment interest surpasses $1,000, can also lead to additional penalties. If you miss or underpay an installment, you can minimize the interest and penalties by overpaying subsequent installments or settling the remaining ones early.