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How much interest does CRA charge on unpaid taxes?

Posted on 26 January 2023

Written by Jeff Adiken

When it comes to creditors, the Canada Revenue Agency (CRA) has an unrivalled amount of power where consequences for not paying your tax debts are concerned. Unlike other creditors, it does not require a court order before taking actions like freezing your bank account or pursuing a wage garnishment if you fall behind on your tax debt payments. For this reason, tax debt should be taken seriously, and needs to be acted upon quickly. If you are struggling to make your payments when they are due, you may need some support with tax debt relief. At Spergel, our Licensed Insolvency Trustees have been helping Canadians to begin fresh financial futures for over thirty years. So, how much interest does CRA charge on unpaid taxes? In this article, we discuss all you need to know about interest on late taxes.

How much interest does CRA charge on unpaid taxes?

If you make your tax debt payments late, you will be charged interest on the taxes you owe by the CRA. If, for instance, you owe a balance on the previous tax year and cannot make your payments by the April 30 deadline, the CRA will begin to charge you compound daily interest from the 1 May. You will also be charged interest on the taxes you owe if you make a late payment. Equally, if you owe tax debt and file your tax return late, you will need to pay a CRA penalty for late filing. The rate of interest that the CRA charges on current or previous balances changes every few months based on prescribed interest rates. If the CRA requires you to pay tax instalments, you will need to make your payments by the instalment payment due dates. Should you miss any of these payment dates, you may need to pay instalment interest. For this reason, it is incredibly important to stay on top of any tax payments you may owe.

Does the CRA charge penalties?

If you file your tax return after the deadline and owe tax debt, you will be charged a penalty for filing late. Filing late can also mean that your benefit and credit payments are delayed. If you cannot make payments on your balance, you should still ensure you file your taxes on time to avoid the penalty. The late-filing penalty is 5% of your balance owing, plus an extra 1% for each month filed after the due date up to 12 months. If you have been charged a penalty for late-filing in 2020, 2021, or 2022 and the CRA have made a formal demand for a tax return, your late-filing penalty for 2023 will be 10% of the balance that you owe. On top of this, you will need to pay an additional 2% for every month you are late to file your tax return after the due date, up to a total of twenty months. You will still need to pay a late-filing penalty even if you have received interest relief from COVID-19 benefits. In addition, there is also a tax instalment penalty which must be paid if your instalment payments are less than agreed or if they are late. This is only relevant if your instalment interest charges are $1,000 or more.

Can I get out of CRA interest or penalties?

If you cannot make your tax payments because of financial difficulties or circumstances beyond your control, you can request that the CRA cancels or waives your interest or penalties. The CRA administers legislation – better known as taxpayer relief provisions – that allow the CRA to cancel or waive interest or penalties when individuals are unable to pay their taxes because of circumstances out of their control. Should the CRA decide to provide relief from interest or penalties, they can only do so within a ten year period from the date you request relief.

What should I do if I cannot pay my tax debts?

Tax debts need to be handled as quickly as possible – they can soon spiral, and penalties and interest payments can escalate quickly. If time goes by, the CRA will not hesitate to take further action to get their repayments. These actions can include freezing your bank account to force you to pay, or even pursuing a wage garnishment against you so that you are taxed at source. These consequences do not require a court order when carried out by the CRA and so they can happen quickly. Thankfully, no matter how bad you may think your financial situation is, there is always always a form of debt relief to help you. At Spergel, we have been helping Canadians begin a fresh financial future for over thirty years, including resolving issues with tax debt. Popular methods of debt relief include a consumer proposal – an affordable monthly repayment proposal you work with a Licensed Insolvency Trustee on to reduce your debt by up to 80%. For some individuals, bankruptcy is the only path forward to a fresh financial future. It is the process of assigning any non-exempt assets over to your Licensed Insolvency Trustee in exchange for the clearance of your unsecured debts. At Spergel, we will review your financial circumstances and advise you as to the best option for you in order to get your finances back on track.

If you have further questions on ‘how much interest does CRA charge on unpaid taxes?’, book a free consultation with Spergel. Our experienced Licensed Insolvency Trustees have over thirty years’ experience of helping Canadians to get their finances back on track, and we can help you to get your tax debt sorted. Reach out today – you owe it to yourself.

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Jeff Adiken

Jeff Adiken is a Certified General Accountant and Chartered Insolvency and Restructuring Professional with over 18 years’ experience as an LIT (Licensed Insolvency Trustee). He also manages all of Spergel's personal insolvency offices and is our resident expert on credit card debt and debt-free living. When his 'manager hat' comes off at the end of the day, Jeff is happiest spending quality time with his family at home.

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