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CRA keeps charging more interest on overdue taxes

The cost of not paying your taxes by the deadline keeps rising.

The interest rate CRA charges on balances owing increased on October 1 to 7%, up from 6% for the previous quarter.  For the first quarter of 2023, the interest rate will rise to 8%.

The current interest rate of 7% on overdue tax is calculated by adding four percentage points to the “base” prescribed interest rate of 3% for the current quarter.

With the higher interest charges, there is a greater chance for an instalment penalty to apply.

CRA instalment penalties apply if interest charges exceed $1,000 and are calculated as follows:

First, they look at which is higher: $1,000 or 25% of the interest charges had you not made any instalments in the year.

Second, they subtract that higher amount from the actual instalment interest charges and divide the difference by 2.

This penalty is then added to your instalment interest payment.

With interest and penalties not tax deductible, consider bank financing as a means to stay on top of what you owe CRA.

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