The Canada Revenue Agency (CRA) charges interest and penalties on overdue tax balances to encourage taxpayers to pay their taxes on time and to promote compliance with Canada's tax laws.
Interest is charged on overdue tax balances at the "prescribed" interest rate, which is set by the Minister of Finance and is based on the current interest rates in the market. The interest rate is reviewed every three months and may be adjusted based on changes in market conditions. Interest is compounded daily and is calculated on a monthly basis.
For the nerds out there, here is the direct source link to where CRA posts their interest rates, with updates every three months.
Penalties are also charged on overdue tax balances to encourage compliance with tax laws and to deter taxpayers from intentionally failing to pay their taxes on time. The amount of the penalty is based on the amount of the overdue tax balance and the length of time that the tax remains unpaid. For example, if a taxpayer owes $1,000 in taxes and the tax remains unpaid for more than three months, the taxpayer may be subject to annual interest charges of 7% on the overdue tax balance, or $70 in this case.
In addition to charging interest and penalties on overdue tax balances, the CRA also has the authority to take other enforcement actions, such as garnishing wages or seizing assets, to collect outstanding taxes. These measures are used as a last resort, and only after the CRA has made multiple attempts to contact the taxpayer and collect the overdue taxes.
The CRA is committed to promoting compliance with Canada's tax laws and to ensuring that all taxpayers pay their fair share of taxes. By charging interest and penalties on overdue tax balances, the CRA aims to encourage taxpayers to pay their taxes on time and to promote voluntary compliance with tax laws.
For more information about interest and penalties on overdue tax balances, visit the CRA website here.
You can always reach out to us if you need help disputing interest and penalty charges with the CRA. Don’t hesitate!
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