Why CRA wants tax installment payments, and what happens if you don't pay them

Why did the CRA send me this letter telling me I have to pay tax by installments? If I don't pay am I in trouble?
Why Am I Being Asked To Pay By Installments?
An installment, like it sounds, is a prepayment of your taxes. Instead of just filing a tax return at the end of the year and paying a tax bill at that time, you're starting to work on that tax bill during the year, while you're earning the money that is going to be taxed. Not everybody has to pay tax by installments. Most people who have salaried jobs don't have to make installment payments because their employers are withholding tax from their paychecks; in effect, the employer is making tax installments on behalf of the employee every payday.
But there are other types of earnings on which no tax is withheld, for example on freelance earnings. In that case income is earned during the year, but CRA may have to wait until after the return is filed for the tax to be paid. While the Canada Revenue Agency doesn't really mind a delay on a small tax bill, it starts to bother them when the bill gets larger.
How Much To Pay?
When you get an installment payment request from CRA they make the assumption that the earning pattern this year is going to be similar to your earning pattern last year. So what they do is they take your prior year tax bill divided in four and ask for four equal payments of that amount.
What Happens if I Don't Pay The Requested Installments?
If you don't pay your requested installments or if you pay only a portion of them, generally you get charged interest. You can check CRA's website to see what their current rate is. But if you do miss installment payments don't really worry that you're on some kind of hit list with CRA, or that you're going to be in trouble, or that they're going to give you a hard time next year. Basically paying the interest has cleared you with CRA, it's all good.
So the installment amounts are always an estimate of tax owing. It's the completing of your tax return that calculates the actual tax owing, on the amount that you actually earned; and as always your tax liability -- the amount of tax that your income has generated -- is compared to your installment payments and any other tax that has been withheld on your behalf to see if you've prepaid too much, too little, or just enough.
Learn more about CRA tax installments: www.personaltaxadvisors.ca/wh...
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Do I need to pay installments in my first year as a self-employed?

[@personaltaxadvisors]

Nope. You only have to start paying for installments after you have filed two out of three consecutive years showing $3,000 or more owing. CRA will inform you when you need to start paying income tax installments (if you're a GST/HST registrant, though, you're expected to track the GST/HST installment requirements for yourself).