Arrears interest

How it builds

For an individual, interest starts the day after the return due date on any unpaid balance, including amounts from reassessments. For a corporation, arrears interest runs on the unpaid balance from the balance-due day to the date of payment. Because it compounds daily, you pay interest on earlier interest as well as on the tax.

The rate is the CRA’s prescribed rate, reviewed every quarter. For October 1 to December 31, 2026, the rate on overdue income tax, CPP contributions and EI premiums is 7%. Check the current quarter before relying on any figure.

An illustrative example

Suppose a corporation owes $20,000 on its balance-due day and pays three months later. At a flat 7% a year, three months is roughly $350 of interest before compounding, so the real figure is a little higher. The exact amount depends on each quarter’s rate and the payment date.

If the same business also filed late, a late-filing penalty is charged separately, and interest does not replace it.

Ways it is reduced or avoided

On a corporation account, if you pay the amount shown on a notice of assessment or reassessment in full by the date it states, additional interest from the notice date to payment is not charged. The CRA also cancels penalty and interest on a corporation account when the total charged is $25 or less once the tax is paid in full, although a later adjustment can reverse that. Ask whether the same applies to your type of account.

Interest keeps accruing while a relief request is under review, and a full or partial payment reduces what builds up. Taxpayer relief can cancel interest in whole or part for circumstances beyond your control. Interest on late instalments is calculated differently and is covered under tax instalments.

What to discuss with your accountant

Ask for the balance, the due date it runs from and the quarterly rates applied. A business can request a statement of interest through My Business Account. If cash is tight, discuss paying part now rather than waiting, and ask how any payment arrangement affects interest. Review whether the balance came from an estimate that was too low, since better year-end forecasting can reduce the problem.