Owe Money to CRA? Here’s What to Know

Evelyn Jacks

Did you know that after the two filing deadlines for 2026 – June 15 for proprietors, April 30 for everyone else – over 7.5 million people owed money to the CRA? If that includes you, it’s important to pay promptly and understand the cost of current interest rates. Here’s what to know:

Owing Money to CRA is Expensive. The prescribed rates of interest for the first two quarters of 2026 have remained unchanged at 3% but, CRA will charge you more – much more – if you owe:

• 7% - that’s the interest rate charged on overdue taxes, Canada Pension Plan contributions, and employment insurance premiums
• 5% - that’s what CRA pays when they owe you money – 2% less – and then just from the date of filing if that’s later than the due date.
• 3% - that’s the interest rate used to calculate taxable benefits for employees and shareholders. That’s an income splitting opportunity now til September 30 at least; as the prescribed rates could change again for the last quarter of the year. Consider planning to make inter-spousal investment loans.
• 3% - the interest rate to be paid on corporate taxpayer overpayments – what CRA owes your corporation if it has overpaid.
• 6.62% - the interest rate for corporate taxpayers’ pertinent loans or indebtedness on tax elections available.

When you owe to CRA. The interest rate owed is compounded daily. That’s a real wealth eroder. In fact that real annual interest rate, which is also known as the effective annual rates is 7.25%. It may be less expensive to borrow from the bank than from the CRA. Check this out and make the comparisons; then pay off CRA first if you can.

When CRA owes you. You will note that when CRA owes you money, they’ll pay you compounding interest at the prescribed rate of interest plus only 2% more. Worse, your interest payment only begins at the latest of:

• 30 days after the balance due date
• 30 days after you file your return
• the day you overpaid your taxes

Interest – Taxable and Deductible? In addition, any interest paid to you by the CRA is taxable and must be reported on your tax return for the year the interest is received.

If the CRA then reassessed your return, created a balance due and you resulting in repaying any of that refund interest you reported, you can claim that repayment as a deduction. Otherwise interest and penalties you pay to the CRA are not deductible. Nor, by the way, is any interest on a loan to contribute to a registered account like an RRSP, TFSA or FHSA.

Quarterly Instalment Remittances. When you are required to make quarterly tax instalment payments, in addition to interest on the balance owing when you file your return, you may be charged instalment interest. 

But that will only occur if your instalments are late or too small. If you discover that your previous instalments for the year are insufficient, you can reduce your instalment interest by making larger instalments for the year, sooner, that is before the June 15, September 15 or December 15 deadline. 

Note that farmers and fishers have until December 31, to make a single instalment remittance for the year, based on 2/3 of their anticipated taxable income.

Once you’re notified of interest payable, no further interest will be charged if the total balance due is paid promptly – this generally means within 20 days of the notice.

Tax Planning. The general rule for paying interest of any kind, is that you should, whenever possible, ensure the interest paid is tax-deductible, for example when paid to acquire an income-producing asset.

Interest paid to the CRA is never deductible and cannot be linked to an income-earning investment, so paying interest to the CRA is to be avoided whenever possible.

To ensure you don’t owe interest to the CRA, you should:

• Pay your taxes each year by April 30, even if you’re self-employed and your tax return is not due until June 15
• If you’re required to make instalment payments, make them on time
• If you’re reassessed, respond immediately. If the reassessment is valid, pay the taxes promptly

Stop Making Interest-Free Loans to CRA.  As much as people love their tax refunds, try not to overpay your taxes at source. That’s just an interest-free loan for CRA. Some tips:

• Increase deductions and credits: make larger charitable donations before year end, RRSP contributions within 60 days of the year end, and be sure to write off all the deductions you are entitled to.
• Whenever possible, arrange to have a balance due of less than $3,000 each year when you file your return. That keeps you out of the quarterly tax remittance profile.
• If you are making instalments, estimate your income taxes for the year before making your last instalment (December 15 or for farmers or fishers, December 31). Don’t make a payment if you’ve paid enough; make an overpayment if your instalments were deficient.
• If you have a refund coming, file as early as possible. Then pay off non-deductible debt, like credit card debt. 

Get your refund all year long. Ensure that your TD1 Tax Credit forms are updated annually to claim the largest personal tax credits possible and increase your take home pay. Then use for T1213 to have tax withholding reduced as much as possible when you have large deductions like an RRSP or moving expenses. If you’ve arranged to have tax withheld from payments such as CPP and OAS but now find your income is lower, cancel the withholding of taxes and use that extra pocket change to fight inflation. 

Additional educational resources:  

Want to learn more about providing professional tax services in your community? Check out the DMA-Personal Tax Services Specialist Program.

This is an industry-recognized professional credential designed to help tax professionals, seasonal preparers, and financial advisors master the complexities of personal tax preparation and planning. It is ideal for

• Aspiring tax professionals looking to start a career or launch a home-based tax practice.
• Seasonal tax preparers and front-desk staff in need of formal training.
• Established accountants, bookkeepers, and financial advisors wanting to deepen their expertise and provide higher-value, after-tax planning.

Not sure you are ready for a full designation program? Get started with Canada’s Income Tax Fundamental’s Course. It’s an introductory, 20-hour, stand-alone certificate course designed to teach the foundations of the Canadian personal tax system, with personal instructor support, including:

• About Canada's Digital Tax System
• What is Taxable? What is Not?
• Reporting Income from Employment, Pensions
• Claiming Deductions
• Claiming Non-Refundable and Refundable Tax Credits
• Reporting Income from Self-Employment
• Reporting Capital Gains from Investments and Properties
• Filing the T1 & Responding to CRA's Communications

You will also receive practical experience preparing basic personal T1 tax returns using professional tax software.

Contact Knowledge Bureau for assistance.