If you’ve ever opened a CRA statement and thought, “Why did my balance jump so much?” … you’re not alone.
A big reason is a simple mix-up:
- Interest is what CRA charges because money was paid late (or underpaid). It keeps growing until the balance is cleared.
- Penalties are extra charges for specific actions (like filing late, remitting payroll late, or filing T-slips late). They are usually calculated using fixed formulas or percentage bands.
The simplest way to remember it
- Interest = time-based cost of being late with money
- Penalty = rule-based charge for a specific miss
You can have one without the other.
Examples:
- File your return on time but pay late → interest, usually no late-filing penalty.
- File late but you’re in a refund position (nothing owing) → often no late-filing penalty, but your filing is still late (and can create other issues).
- Remit payroll late → usually penalty + interest.
- File GST/HST late with money owing → often penalty + interest.
CRA interest: what it is and how it’s calculated
When does CRA start charging interest?
Generally, interest starts right after the payment due date.
For personal income tax, CRA states it charges compound daily interest starting the day after the due date on any unpaid amount (including reassessments).
For payroll remittances, CRA states it may apply interest from the day the payment was due, and also notes key mechanics (rate set quarterly, compounded daily, and applies to unpaid penalties).
Does CRA compound interest daily?
CRA explicitly references daily compounding in its personal tax guidance and in payroll remittance guidance.
What interest rate does CRA use?
CRA uses prescribed interest rates, which can change each calendar quarter.
Practical point: If your balance spans multiple quarters, CRA may apply different rates over time because the prescribed rate can change every quarter.
CRA penalties: what they are and what triggers them
Penalties are usually triggered by a specific event, such as:
- Filing a return late when there is a balance owing
- Remitting payroll deductions late
- Filing GST/HST late when there is a balance owing
- Filing information slips late (T4/T4A/T5, etc.)
- Failing to file electronically when required (some programs)
- Ignoring a CRA demand to file (some programs)
Penalties typically hit once per event (or per day, for some slip filings), while interest keeps ticking until you pay.
Side-by-side comparison
| Item | Interest | Penalties |
|---|---|---|
| What it is | Time-based charge Cost of being late paying money you owe. | Rule-based charge Extra charge triggered by a specific miss (late filing, late remitting, etc.). |
| What triggers it | Usually: payment not made by the due date. | Usually: a specific action (file late with tax owing, remit payroll late, file slips late, etc.). |
| How it grows | Accrues over time; often compounded daily; rate can change quarterly. | Often a fixed formula/percent, or per-day amount (e.g., slips). Can be higher for repeat behaviour. |
| Can you have it without the other? | Yes (pay late, but filed on time). | Yes (file late with balance owing, penalty hits even if you pay soon after). |
| Can CRA charge interest on penalties? | Yes in many cases (example: payroll page notes CRA applies interest to unpaid penalties). | Yes—meaning penalties can create more interest if not paid. |
Common CRA penalty calculations by account
Below are the penalty structures business owners run into most often. (Interest may apply on top of these if amounts remain unpaid.)
1) Corporate tax (T2): late-filing penalty (when tax is unpaid)
If a corporation files its return late and has unpaid tax due on the filing deadline, CRA describes the penalty as:
- 5% of the unpaid tax (at the filing deadline), plus
- 1% per complete month late (up to 12 months)
CRA also notes a higher penalty can apply in certain repeat/demand-to-file situations (bigger base % and monthly %).
Key takeaway: Even if you can’t pay, filing the T2 on time can help you avoid this penalty (you’d still deal with interest on the unpaid amount).
2) GST/HST: late-filing penalty (when you file late and owe)
CRA’s GST/HST late-filing penalty uses a formula. If you file after the due date and you owe money, CRA states the penalty is:
A + (B × C), where:
- A = 1% of the amount owing
- B = 25% of A
- C = number of complete months overdue (max 12)
CRA also explicitly states you cannot claim an income tax deduction for a penalty paid/payable for failing to correctly file a GST/HST return.
Important nuance: CRA also mentions interest may apply in addition to filing penalties if you have an overdue balance or make late/insufficient instalments.
3) Payroll source deductions (RP): late remittance penalty (percentage bands)
Payroll is one of the fastest ways to rack up penalties because it’s not just “late filing”, it’s “late remitting.”
CRA states the payroll remittance penalty is:
- 3% if 1 – 3 days late
- 5% if 4 – 5 days late
- 7% if 6 – 7 days late
- 10% if more than 7 days late (or no amount remitted)
- 20% in certain repeat/gross negligence situations
CRA also notes on the same page that interest:
- rate is set each quarter (prescribed rates)
- is compounded daily
- can apply to unpaid penalties
Key takeaway: Payroll penalties can start at 3% after just one day late, often much harsher than people expect.
4) T-slips and other information returns: late filing penalty (per day)
CRA treats each slip type as an information return, and late filing penalties are based on how many slips you filed late.
CRA states the penalty is $100 or the amount calculated by the chart (whichever is more), where the chart is a per-day penalty (up to 100 days) based on the number of slips filed late.
Practical point: If you file different slip types late (example: T4 and T4A), CRA can assess separate penalties for each information return type.
5) Personal income tax (T1): interest and late-filing penalty basics
CRA states that if you owe taxes, it charges compound daily interest starting the day after the due date.
For the late-filing penalty (when there is a balance owing), CRA states:
- 5% of the balance owing, plus
- 1% per full month late (up to 12 months)
CRA also describes a higher repeated late filing penalty in certain conditions (prior penalty + demand to file).
Key takeaway: Filing on time matters even if you can’t pay, because interest and penalties are not the same thing.
6) Trust returns (T3): late filing penalties can still apply
Trusts have their own filing deadlines (commonly 90 days after year-end), and there are penalties for failing to file in certain cases.
CRA’s enhanced reporting FAQ notes that where a trust failed to file and has no unpaid taxes on the filing deadline, a penalty can be calculated at $25 per day (minimum $100, maximum $2,500) for the period the failure continues.
Key takeaway: Trust filings can create penalties even when there isn’t tax owing, especially under enhanced reporting expectations.
Quick “what will CRA charge me?” cheat sheet
| CRA account / obligation | Common penalty trigger | How the penalty is typically calculated | Interest? |
|---|---|---|---|
| Corporate tax (T2) | Return filed late with unpaid tax due at filing deadline | 5% + 1% per complete month late (max 12 months) higher in some repeat cases | Usually yes (separate from penalty) |
| GST/HST | Return filed late with amount owing | A + (B×C): A=1% of owing; B=25% of A; C=months overdue (max 12) | Yes if balance/instalments late |
| Payroll remittances (RP) | Source deductions sent late | 3% / 5% / 7% / 10% based on days late; 20% in some repeat/gross negligence cases | Yes; CRA notes daily compounding and interest on unpaid penalties |
| T-slips / information returns | Slips filed late | Per-day penalty (up to 100 days) based on # of slips; minimum $100 (varies by slip program) | Depends on related amounts owing; penalties are separate |
| Personal tax (T1) | Return filed late with balance owing | 5% + 1% per full month late (max 12); higher in some repeat cases | Yes; CRA describes compound daily interest starting day after due date |
| Trust returns (T3) | Return not filed (even with no tax owing in some cases) | Example noted: $25/day (min $100, max $2,500) in certain “no unpaid tax” failure-to-file situations | Yes if tax/penalties unpaid |
Examples: why your CRA balance can jump fast
Example 1: You filed on time, but paid late
- You file a return by the deadline.
- You don’t pay the balance owing until 30 days later.
Result:
- No late-filing penalty (because you filed on time), but
- Interest accrues from the day after the due date (often compounded daily).
Example 2: You filed GST/HST late with an amount owing
- You miss the GST/HST filing deadline.
- You had a balance owing on the return.
Result:
- Late-filing penalty using CRA’s formula A + (B × C), plus
- Interest if the amount owing remains unpaid.
Example 3: Payroll remittance is 8 days late
Result:
- The penalty band can jump to 10% (plus interest), and CRA notes interest is compounded daily and applies to unpaid penalties.
How to minimize interest and penalties
1) File on time even if you can’t pay
This is one of the biggest “money-saving” habits.
Why:
- Many major penalties are late-filing penalties that you can avoid by filing on time.
- Interest may still apply on unpaid balances, but you’ve avoided stacking a penalty on top.
CRA explicitly tells personal taxpayers to file on time even if they cannot pay (to avoid the late-filing penalty).
2) Don’t ignore a CRA demand to file
For GST/HST, CRA states that if you receive a demand to file and do not file, you may be charged $250 in addition to other penalties.
3) Treat payroll like a “tax priority”
Payroll remittances can create quick, steep penalties after only a few days late.
If cash flow is tight, talk to your accountant early … don’t wait for arrears to spiral.
4) Watch instalment requirements (because interest can apply)
CRA notes interest can apply to late/insufficient instalments across personal and business tax contexts.
Can CRA cancel or waive interest and penalties?
Sometimes, yes – when circumstances beyond your control prevented you from meeting obligations.
CRA’s Taxpayer Relief information explains you can request cancellation/waiver in extraordinary circumstances.
For personal tax, CRA also notes a 10-year period ending in the calendar year the request is made.
CRA provides Form RC4288 to request taxpayer relief (cancel/waive penalties and interest).
FAQs
Is CRA interest the same as a penalty?
No. Interest is time-based and accrues on unpaid amounts; penalties are triggered by specific actions like late filing or late remitting.
Does CRA charge interest from the filing date or payment due date?
Generally from the payment due date (often starting the day after). For personal tax, CRA states interest starts the day after the due date.
Does CRA compound interest daily?
CRA explicitly references compound daily interest for personal taxes and notes daily compounding for payroll remittance interest.
How often do CRA interest rates change?
CRA prescribed interest rates can change every calendar quarter.
What is the GST/HST late-filing penalty formula?
CRA states it as A + (B × C) with A = 1% of amount owing, B = 25% of A, C = complete months overdue (max 12).
Can CRA charge interest on penalties?
In payroll contexts, CRA states it applies interest to unpaid penalties.
What’s the penalty for late payroll remittances?
CRA states 3% / 5% / 7% / 10% based on days late, with 20% in certain repeat/gross negligence cases.
What’s the penalty for filing T4s late?
CRA states late filing penalties are based on the number of information returns filed late, with a minimum penalty and a per-day chart framework (and separate penalties by slip type).
If I file late but owe $0, do I still get a penalty?
For GST/HST, CRA states it will not charge a late-filing penalty if you have $0 owing or CRA owes you a refund.
(Other programs can still have different consequences, so don’t assume this applies everywhere.)
Can CRA waive interest and penalties?
Sometimes. CRA has a process to request cancellation/waiver in extraordinary circumstances, including using Form RC4288.
How far back can I request Taxpayer Relief?
CRA references a 10-year window (ending in the calendar year you make the request) in its personal tax guidance.
Final Takeaway
CRA interest and penalties are different charges with different triggers and math. Interest is time-based and keeps growing (often compounded daily). Penalties are rule-based and can be steep, especially for payroll remittances, GST/HST late filing with balances owing, and late T-slips.
If you’re seeing CRA charges and you’re not sure what’s driving the balance (interest vs penalties), Think Accounting can help you read the CRA statements, prioritize what to fix first, and build a plan to stop the charges from compounding across corporate tax, GST/HST, payroll, slips, personal tax and trusts. Reach out to our tax team via the link below. Our team can also represent you for CRA audits and taxpayer relief requests. Reach out via the link below.
