Why the Canada Revenue Agency Charges Interest and Penalties
Why the CRA Charges Interest and Penalties on Overdue Taxes
When it comes to unpaid taxes in Canada, the Canada Revenue Agency (CRA) doesn’t just wait around. They apply interest and penalties to overdue balances—not just to collect money, but to encourage timely payments and compliance with tax laws.
Here’s what you need to know.
Interest Charges: How They Work
If you owe taxes and don’t pay by the deadline, interest starts accruing immediately. The interest rate used is the CRA’s prescribed rate, which is based on current market conditions and set quarterly by the federal government.
This interest is:
Compounded daily
Applied monthly
Reviewed every 3 months
💡 Example: If the interest rate is 7%, and you owe $1,000, you’d see around $70 in annual interest if the balance remains unpaid.
Penalties: When & Why They’re Charged
Penalties are different from interest. They’re not just about time—they’re about behavior. CRA applies penalties to deter taxpayers from intentionally delaying payment or ignoring their tax obligations.
The longer the tax remains unpaid, the higher the potential penalties—especially for late filings or repeated late payments. These charges can build up quickly and add to your total tax debt.
What Happens If You Still Don’t Pay?
If the balance continues to go unpaid, CRA can escalate collection efforts. This could include:
Wage garnishments
Freezing bank accounts
Seizing assets
That said, enforcement is generally a last resort. CRA usually attempts to contact you multiple times, offering payment plans or communication before taking stronger action.
What You Can Do
The best way to avoid interest and penalties? File on time—even if you can’t pay in full. CRA is often more lenient with those who show good-faith efforts to stay compliant.
If you're already dealing with penalties or interest, a tax professional may be able to help:
Dispute a charge
Apply for taxpayer relief
Negotiate a payment plan
Final Thought
The CRA charges interest and penalties not to punish, but to keep the system fair and ensure everyone pays their share. If you’re overwhelmed by your tax situation or struggling with interest and penalties, don’t wait—reach out. There are always options.
Tax Preparation Services Near You (Not Limited to These Areas):
I regularly work with clients in the locations below, but my services are available to many more regions as well.
