CRA Quarterly Instalment Payment Calculator: Ontario Freelancer with $28K Owing — No-Calculation, Prior-Year, and Current-Year Methods Compared

The $3,000 Threshold: Who Must Pay Instalments

CRA requires quarterly instalment payments from any individual whose net tax owing exceeds $3,000 in the current year and in either of the two preceding years. Net tax owing is your total tax payable minus any amounts withheld at source — employment tax deductions, for example.

For self-employed freelancers with no employer withholding, the full combined federal and Ontario provincial tax bill counts toward this threshold. If you owed $28,000 in 2024 (and $23,000 in 2023), both years exceed $3,000 by a wide margin, and CRA will send you an instalment reminder (Form INNS1 or INNS3) in February.

The $3,000 threshold is lower than many freelancers expect. A sole proprietor earning roughly $50,000 net with no other withholding will typically cross it. If you are unsure whether you are required to pay, check your 2023 and 2024 Notice of Assessment — line 48400 shows your net tax owing. For the penalty structure when filing late on a balance this size, see our CRA late-filing penalty calculator.

The Three CRA Instalment Methods Explained

CRA allows you to calculate quarterly instalments using any of three methods. You do not need to tell CRA which method you chose — at year-end, CRA automatically applies whichever method produces the lowest instalment interest for you. Here is each method applied to our Ontario freelancer scenario:

Method 1: No-Calculation (Prior-Prior Year)

This method uses the amounts printed on the instalment reminder CRA mails you. For the first two quarters (March and June), CRA bases the payment on your tax owing from two years ago (2023). For the last two quarters (September and December), CRA adjusts to use the prior year (2024) minus what you already paid in the first two quarters.

The no-calculation method is convenient because CRA does the math for you and prints the amounts on your reminder. It is also advantageous when income is rising: the first two payments are based on the lower prior-prior year, easing early-year cash flow.

Method 2: Prior-Year

Each quarterly payment equals one-quarter of your prior year's net tax owing. All four payments are identical.

The prior-year method is the simplest to understand and apply. It produces level payments throughout the year, making budgeting predictable. Since the total matches the no-calculation method ($28,000), the only difference is timing — you pay more in March and June but less in September and December.

Method 3: Current-Year Estimate

You estimate your current year's tax owing and divide by four. This method requires you to forecast your income accurately.

The current-year method is the only one that avoids a balance owing at filing time — but it requires the highest quarterly cash outflow. It also carries risk: if you overestimate your income, you've overpaid and must wait for your refund. If you underestimate, you may face instalment interest on the shortfall.

Side-by-Side Comparison: All Three Methods

Which Method Minimizes Cash Outflow When Income Is Growing?

When your income is rising year over year — common for freelancers building their practice — both the no-calculation and prior-year methods result in lower total instalments than the current-year method. In our scenario, both produce $28,000 in total payments versus $32,000 for the current-year method, a $4,000 difference in annual cash outflow.

The no-calculation method goes one step further by front-loading the lower payments in Q1 and Q2 ($5,750 each vs $7,000 under the prior-year method). This is advantageous if cash flow is tightest early in the year — a common pattern for freelancers whose clients pay on net-60 terms.

The key trade-off: using a lower-payment method means a larger lump sum owing at filing time (April 30). A disciplined freelancer can park the $4,000 difference in a high-interest savings account earning 4–5% and actually come out ahead compared to paying the current-year amount. At 4.5% on $4,000 over roughly 8 months, that is approximately $120 in interest earned. For a broader look at how self-employed Canadians manage cash flow alongside CPP contributions, see our self-employed net worth calculator.

Instalment Interest: What Happens When You Underpay

CRA charges instalment interest at the prescribed rate plus 4 percentage points, compounded daily. For 2025, the prescribed rate for underpaid instalments is approximately 5%, making the effective instalment interest rate roughly 9% annually.

Interest accrues from the due date of the missed or short payment until the earlier of your actual payment date or April 30 of the following year. Here is a worked example:

CRA automatically offsets interest charges against any overpayments from other quarters. If you paid $8,250 in March (no-calculation method) but only owed $7,000 under the prior-year method, the $1,250 overpayment earns credit that offsets underpayment interest from later quarters.

The Instalment Penalty: When Interest Exceeds $1,000

If your total instalment interest for the year exceeds $1,000, CRA may apply an additional instalment penalty. The penalty equals 50% of the amount by which your instalment interest exceeds the greater of:

• $1,000, or
• 25% of the instalment interest that would have been charged if no payments were made at all

For most freelancers making reasonable instalment payments, the penalty does not apply — it targets individuals who make little or no effort to pay instalments. But if you skip two or more quarters on a $28,000+ tax bill, you can cross the $1,000 interest threshold quickly.

2025 Instalment Due Dates and Payment Methods

Payment methods include online banking (add CRA as a payee using “CRA — Tax Instalment”), CRA My Account, pre-authorized debit, or mailing a cheque with the INNS3 remittance form. Online banking is the fastest — payments typically post within 1–2 business days. Allow 5–10 business days for mailed cheques.

Reducing Your Instalment Base with RRSP Contributions

An RRSP contribution made before the March 3, 2025 deadline (for the 2024 tax year) directly reduces your 2024 net tax owing. Since the prior-year and no-calculation methods both use your prior-year tax owing as a base, this reduces your 2025 quarterly instalments.

This strategy works best when you have RRSP contribution room available and the cash to contribute. The RRSP contribution does not change your actual 2025 tax liability — it only changes the base CRA uses to calculate instalment amounts. You still owe whatever your actual 2025 tax turns out to be, and any shortfall is due at filing time. For how RRSP allocations fit into a broader portfolio strategy, see our RRSP vs TFSA vs non-registered split calculator.

Ontario-Specific Considerations

Ontario freelancers pay combined federal and provincial tax in a single instalment to CRA — there is no separate provincial payment. Ontario's 2025 combined marginal tax rates for self-employment income are:

A freelancer owing $28,000 in combined tax typically has net self-employment income in the $90,000–$110,000 range (depending on deductions and CPP contributions), placing them in the 29.65%–31.66% combined marginal bracket. The expected $32,000 owing this year suggests income growth into the 37.16% bracket. For how Alberta's rate structure compares at similar income levels, see our Alberta vs Ontario income tax comparison.

Strategic Approach: Combining Methods with a Savings Buffer

The optimal strategy for a growing freelancer is often a hybrid: pay the no-calculation or prior-year amount each quarter (avoiding instalment interest) and park the expected shortfall in a high-interest savings account.

This approach works because CRA does not charge instalment interest if your payments meet or exceed the amount required under any of the three methods. Paying the prior-year amount satisfies method 2, so even though your actual tax is higher, no interest accrues on the quarterly payments. You simply owe the $4,000 balance by April 30 (or June 15 for self-employed filers, though interest on the balance runs from April 30). For a detailed look at how CRA calculates interest on balances owing, see our self-employed instalment calculator for Alberta contractors.

What If Your Income Drops Instead of Grows?

The analysis above assumes rising income. But what if your freelance income drops in 2025 and actual tax owing is only $22,000? Under the prior-year method, you would have paid $28,000 in instalments — a $6,000 overpayment that CRA refunds when you file. You get the money back, but you have lost the use of $6,000 for up to a year.

In a declining-income scenario, the current-year method produces the best cash flow result — you estimate lower tax and pay lower instalments. However, this carries risk: if your estimate is wrong and actual tax exceeds your estimate, you face instalment interest on the shortfall. The no-calculation method splits the difference, using the lower prior-prior year for Q1–Q2 and adjusting upward for Q3–Q4.

Rule of thumb: If you expect income to drop by more than 20%, consider the current-year method with conservative estimates. If income is flat or rising, stick with the no-calculation or prior-year method.

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