The Canada Revenue Agency (CRA) is implementing increasingly higher interest rates on overdue taxes, which poses a significant financial risk for those who might face delays in payments or potential reassessment. The interest is calculated based on a prescribed rate, tied to the yield on the Government of Canada’s three-month Treasury bills plus four percentage points, and it compounds daily on the unpaid balance from the balance-due date to the date of payment.
As of the fourth quarter of 2023, the CRA interest rate on overdue taxes stands at a substantial 9%, and there’s an expectation of a further increase to 10% starting in January 2024 — a level not witnessed since the second quarter of 2001.
It’s essential to note that the interest paid to the CRA is non-deductible, adding to the overall financial burden. To help you navigate these challenges, we recommend the following practical measures:
- Immediate Payments: Make prepayments or advance payments to the CRA where possible to halt the accumulation of additional interest.
- Address Tax Instalments: Rectify any deficiencies in tax instalments promptly, staying on top of remittance requirements to avoid unnecessary penalties.
- Explore Financing Options: Consider alternative, cost-effective sources of financing for CRA balances. For example, a Business Line of Credit at 8% may be more advantageous than the 10% rate on CRA balances, with the added benefit of potentially deductible interest.
- Utilize the Voluntary Disclosures Program (VDP): Rectify non-compliance issues through the VDP, which may qualify for partial interest relief and penalty relief.
Given the impact of these high-interest rates on taxpayers’ risk appetite, it’s crucial to reassess your tax position. In the past, a more aggressive stance might have been viable, but with today’s astronomical interest rates, associated risks are considerably higher.
If you anticipate challenges with overdue taxes or foresee difficulties funding upcoming tax liabilities, please reach out to us. We are here to discuss your specific situation and explore viable options tailored to your needs.
| Quarter | Interest Rate | Upcoming Change |
|---|---|---|
| Q4 2023 | 9% | Expected increase to 10% in January 2024 |
Key Recommendations:
- Make immediate payments to halt additional interest.
- Address tax instalments promptly to avoid penalties.
- Explore alternative financing options, considering potential deductible interest.
- Utilize the Voluntary Disclosures Program for relief.
Considerations:
- Non-deductibility of CRA interest adds to the overall financial burden.
- Reassess tax positions due to increased risk in the current climate.
If anticipating challenges with overdue taxes, reach out to discuss tailored solutions.