CRA Instalment Interest: How the 7% Actually Works (2026)

Quick answer: as of October 2026, CRA instalment interest is 7% a year, compounded daily, on any instalment you were required to pay and paid late or short. That 7% is the CRA prescribed rate for both the third quarter (July 1–September 30) and the fourth quarter (October 1–December 31) of 2026, and it runs from the payment's due date to your balance due date, April 30, 2027. The CRA also credits interest for paying early or extra, nets it against what you owe, and adds a separate penalty only once your yearly instalment interest passes $1,000. This guide walks through how the 7% works, using the CRA's own numbers, and what the December 15 date can still change.

Last verified October 2026: every rate, date and threshold below was checked against canada.ca on October 7, 2026 (pages listed under Sources).

The rate, and why it moves

The CRA prescribed interest rate on overdue amounts, including late or short instalment payments, is 7% for the third quarter of 2026 (July 1 to September 30) and 7% for the fourth quarter (October 1 to December 31) (Canada Revenue Agency). The Q4 rate was published on August 28, 2026. It is not a fixed annual number: the CRA resets the prescribed rate every quarter, so the rate on a given day depends on the quarter that day falls in, not the quarter you happen to be reading this in.

For 2026, that means every day from July 1 through December 31 is charged at the same 7%. The Q1 2027 rate (January 1 to March 31, 2027) had not been published as of October 7, 2026. If a 2026 shortfall stays unpaid into 2027, those days will use whatever rate the CRA sets for that quarter, so check the CRA's prescribed interest rates page before relying on 7% for them.

Why "compounded daily" matters

Instalment interest is not a one-time calculation on the original shortfall. It compounds daily: each day the amount stays unpaid, that day's interest is added to the balance, and the next day's interest is calculated on the new, slightly larger total. Over a few weeks the difference from simple interest is small. Over months, it adds up a little faster than a flat 7% would suggest.

A worked illustration

Take a $2,500 instalment due September 15, 2026 and left entirely unpaid until the April 30, 2027 balance due date, 227 days in all:

Item	Amount
Instalment skipped	$2,500
Days from September 15, 2026 to April 30, 2027	227
Rate	7%, compounded daily (confirmed to December 31, 2026; assumed for 2027)
Instalment interest	about $111

That is an illustration, not a quote. The 2026 days are at the confirmed 7%; the 2027 days assume the rate holds, which the CRA has not yet said. The figure is also incomplete on its own, because the CRA does not evaluate one missed date in isolation.

The part most people miss: credit (contra) interest

Instalment interest does not only run one way. Paying an instalment early, or paying more than the required amount, earns credit interest that offsets interest charged on late or short instalments in the same year (Canada Revenue Agency). In effect, your instalment interest is the interest on what you should have paid minus the credit interest on what you did pay. If you paid March and June in full or early but missed part of September, the credit from those earlier payments nets against what September owes.

Two limits are worth knowing. The credit is not refundable, and it can only be used against instalment interest charges for the same tax year. It won't come back to you as cash, and it can't be carried into 2027. Within 2026, though, it is a real offset and the CRA's own mechanism.

December 15: the last 2026 date, and what it can still fix

December 15, 2026 is the last instalment due date for 2026 (Canada Revenue Agency). It falls on a Tuesday this year. If you paid short in September, December is where you can still change the picture, in two ways:

• Paying the September shortfall stops its interest growing. At 7% compounded daily, the same $2,500 September shortfall paid on December 15 (91 days) costs about $44, against about $111 if it waits until April 30, 2027. Paying it sooner than December costs less again.
• Paying December early or over the required amount earns credit interest that offsets some of the interest on September, as long as it is the same tax year.

If you pay by pre-authorized debit, the CRA needs it scheduled at least 5 business days before the withdrawal, so set it up early in December, not on the 15th. Our guide to the December 15 instalment covers whether you owe one and how much, and the September catch-up guide covers paying a missed amount now.

The $1,000 line, and the penalty formula

Instalment interest and the instalment penalty are two different things. An instalment penalty applies only if your instalment interest charges for 2026 are more than $1,000. Below that threshold, the interest you owe is the entire cost.

Once the $1,000 line is crossed, the formula is specific: the CRA takes the greater of $1,000 or 25% of the interest you would have paid had you made no instalment payments at all, subtracts that from your actual instalment interest, and divides the difference by two (Canada Revenue Agency). The CRA's own example: $2,500 of actual instalment interest, against $3,200 that would have accrued with no instalments paid. The flat $1,000 beats the $800 that 25% of $3,200 produces, so $2,500 − $1,000 = $1,500, halved to a $750 penalty. For most self-employed people paying instalments in the low thousands per quarter, the formula never comes into play.

Before any of this applies: are you required to pay?

None of the interest mechanics matter if you were never required to pay. You may have to pay tax by instalments if your net tax owing is more than $3,000 ($1,800 if you live in Quebec) in 2026, and it was also more than that in either 2025 or 2024 (Canada Revenue Agency). A reminder is a calculation from your past returns, not a ruling on this year: if your 2026 net tax owing lands at or under the threshold, the interest clock never starts. Run your own estimate with the CRA instalment calculator before assuming a reminder applies to you. If this is your first reminder and it only shows September and December, that uneven 75%/25% split is normal, explained here.

The calm takeaway

Estimate first, worry second. The 7% is not a cliff. It is a daily meter that only runs on amounts you were required to pay and didn't, that credits you for paying early or extra, and that adds a penalty only after the interest itself passes $1,000. What removes the arithmetic altogether is having the money set aside before each date arrives. Our guide to how much tax to set aside when self-employed works out the percentage, and the 2026 freelancer tax calendar puts every instalment date on one page.

VRITTI is a Canadian iOS app for self-employed people, coming soon. VRITTI sets this aside for your province as income lands, so September and December are transfers, not scrambles. Join the waitlist, and see how the whole picture fits together on self-employed taxes in Canada.

Sources

• CRA — Prescribed interest rates, fourth calendar quarter 2026 (7% on overdue amounts, October 1–December 31, 2026; published August 28, 2026)
• CRA — Prescribed interest rates, third calendar quarter 2026 (7% on overdue amounts, July 1–September 30, 2026)
• CRA — Prescribed interest rates (all quarters; check here for Q1 2027 once published)
• CRA — Interest and penalty charges on instalments (daily compounding; credit interest is non-refundable and same-year only; the $1,000 penalty threshold and formula)
• CRA — Instalment payment due dates (March 15, June 15, September 15, December 15, 2026; next-business-day rule)
• CRA — Who has to pay tax instalments ($3,000 / $1,800 Quebec thresholds; the 2026-and-2025-or-2024 test)
• CRA — Make a payment (pre-authorized debit must be scheduled at least 5 business days ahead)
• Government of Canada — 2026 tax deadlines for businesses and self-employed individuals (December 15, 2026 instalment; April 30, 2027 balance due)

This article explains CRA rules in plain language. It is an estimate, not advice: general information, not tax advice for your situation. Last verified October 2026 — every figure above was checked against canada.ca on October 7, 2026. Quarterly rates change; check the current CRA page before relying on a number.