The short version
- CRA charges interest on overdue tax at its prescribed rate, compounded daily: 7% a year for October to December 2026. The rate is reset every quarter, and interest also runs on penalties.
- Filing late with a balance owing costs 5% of the balance plus 1% for each full month late, up to 12 months. Repeat late filers can pay 10% plus 2% a month, up to 20 months.
- Not reporting income twice within four years can cost up to 10% of the unreported amount; knowingly or carelessly making a false statement costs 50% of the tax involved (at least $100).
- CRA pays you interest on refunds too: 5% for October to December 2026 for individuals, but only starting 30 days after the later of the balance-due day and the day you filed.
- Penalties and interest can sometimes be cancelled through taxpayer relief, or avoided through a voluntary disclosure before CRA finds the problem.
CRA Penalties and Interest Explained
CRA's penalties have a logic to them: small and automatic for being late, large and deliberate for being careless or dishonest. Interest sits underneath everything, quietly compounding every day, including on the penalties. Most people pay far more in avoidable penalties than in interest, and the single cheapest habit in Canadian tax is filing on time even when you can't pay. Here's the list, with the numbers.
Interest Rates, October to December 2026
| Interest | Rate | From when |
|---|---|---|
| Overdue tax, penalties, CPP and EI owing | 7% | The day after the due date (April 30 for most individuals), compounded daily |
| Refunds to individuals | 5% | 30 days after the later of the balance-due day and the day you filed |
| Refunds to corporations | 3% | Later, and at a lower rate |
| Instalments not paid on time | 7% | Each instalment's due date |
Interest on $10,000 owed for a year at 7%, compounded daily, is about $725. CRA interest isn't tax-deductible, so it's a real 7%. More on paying late is on late payment interest.
What will your penalties and interest be?
Tell the assistant what you owe, the tax year, and when you filed or plan to file. It estimates the late-filing penalty and interest and tells you whether relief or a voluntary disclosure could reduce them.
Penalties for Individuals
| Penalty | Amount | When it applies |
|---|---|---|
| Late filing | 5% of the balance owing, plus 1% of it for each full month late, up to 12 months | Return filed after the deadline with a balance owing; see filing taxes late |
| Repeat late filing | 10% of the balance owing, plus 2% a month, up to 20 months | CRA demanded the return and you were charged a late-filing penalty in any of the three previous years |
| Repeated failure to report income | Lesser of 10% of the unreported amount and 50% of the related understated tax (net of tax withheld) | You missed $500 or more of income in the year and also in any of the three previous years |
| False statement or omission (gross negligence) | Greater of $100 and 50% of the understated tax or overstated credits | Made knowingly, or in circumstances amounting to gross negligence |
| Instalment penalty | Half of (instalment interest minus the greater of $1,000 and 25% of the interest you'd owe with no instalments) | Instalment interest over $1,000; see tax instalments |
| Foreign property (T1135) filed late | $25 a day, up to $2,500 per year | Foreign property costing more than $100,000 and the form is late |
Business and GST/HST Penalties
| Penalty | Amount |
|---|---|
| Late T2 corporate return | 5% of unpaid tax plus 1% a month, up to 12 months (repeat: 10% plus 2%, up to 20); see the T2 return |
| Corporation not filing electronically when required | $1,000 |
| Late GST/HST return | 1% of the amount owing plus 0.25% a month, up to 12 months; see filing a GST/HST return |
| GST/HST return on paper when e-filing was required | $100 the first time, $250 after that |
| Payroll deductions not withheld or remitted | 10% of the amount, 20% for repeat failures made knowingly or with gross negligence in the same year |
A Worked Example
You owe $5,000 for 2025 and file on August 31, 2026, four full months late:
| Amount | |
|---|---|
| Late-filing penalty: 5% + 4 x 1% = 9% of $5,000 | $450 |
| Interest on the $5,000 from May 1 to August 31 at 7% | about $120 |
| Total extra cost | about $570, still growing until paid |
| Filed on time, paid in August | about $120 of interest only |
Filing on time would have saved $450, even with no money to pay.
Getting Penalties and Interest Reduced
- Taxpayer relief: for serious illness, a death in the family, a disaster, CRA errors or financial hardship; see taxpayer relief.
- Voluntary disclosure: before CRA contacts you, coming forward can wipe out penalties and cut interest by up to 75%; see Voluntary Disclosures Program.
- Objection: if a penalty was applied wrongly (for example gross negligence where you made an honest mistake), object to it like any other assessment; see CRA objection.
- Pay sooner: every dollar paid stops interest on itself; see payment arrangements.
Rules That Avoid Most Penalties
- File on time every year, even with no money.
- Report every slip; CRA already has them. Check missing slips before filing.
- Pay instalments if CRA asks for them.
- Fix mistakes yourself before CRA finds them.
More on dealing with CRA is on the CRA guide.
CRA Penalties and Interest Questions
What interest rate does CRA charge on overdue taxes?
The prescribed rate, compounded daily. It is 7% a year for October to December 2026 and is reset every quarter.
What is the CRA late-filing penalty?
5% of the balance owing plus 1% of the balance for each full month the return is late, up to 12 months. Repeat late filers can pay 10% plus 2% a month, up to 20 months.
Is there a penalty for filing late if I don’t owe anything?
The late-filing penalty is based on the balance owing, so it is zero if you owe nothing. You may still lose or delay benefits and credits.
Does CRA pay interest on refunds?
Yes. For individuals it is 5% for October to December 2026, starting 30 days after the later of the balance-due day and the day you filed.
Can CRA cancel penalties and interest?
Yes, under the taxpayer relief provisions, for extraordinary circumstances, CRA errors, or inability to pay. Apply with form RC4288 or through My Account.
Sources: CRA, Prescribed interest rates, Q4 2026; Late-filing penalty; Avoiding penalties (corporations). Checked October 2026. Refund interest timing, the failure-to-report and gross negligence penalties, the T1135 penalty and payroll penalties are summarized from the Income Tax Act (sections 162, 163, 164 and 227) as we understand them. The example uses simple daily-compounded interest and ignores interest on the penalty.
Last reviewed October 5, 2026 against CRA and Government of Canada sources. How we check our facts.