CRA Interest and Penalties for Businesses: What You're Actually Being Charged

1. Interest isn't the same as a penalty

A penalty is CRA's charge for something you didn't do. You filed late, missed an instalment deadline, or broke a specific rule. It's a one-time hit.

An interest charge is different. It's the cost of owing money past the due date. And it starts the day the balance is overdue — whether or not you also got a penalty.

Here's why that matters. Most owners fixate on the late-filing penalty and ignore the bigger number: ongoing arrears interest. You can file your T2 late and get dinged with the penalty. But you can also file on time, still owe tax, and get hit with arrears interest anyway. Separate problem, separate cost.

• Penalty — one-time charge, tied to a specific failure (late filing, missed slip, repeated offence).
• Arrears interest — ongoing, compounds daily, applied to any unpaid balance past its due date.
• Instalment interest — a separate charge when you miss or underpay your required quarterly instalments.

2. How the prescribed rate works

CRA doesn't pick interest rates at random. They set what's called a prescribed rate, and they review it every quarter. It's published. You can look it up.

So it's not whatever your accountant remembers from six months ago. It's the actual rate CRA is applying to your balance right now.

Overdue income tax, GST/HST, payroll remittances — they all attract interest once they pass the payment deadline. And if the debt drags across multiple quarters, different prescribed rates can apply along the way. The rate environment moves. CRA follows the dates, not when you meant to pay.

3. Why daily compounding hurts more than you think

CRA arrears interest compounds daily. That's the part most owners miss.

You hear “10%” and think rough annual cost. But daily compounding means the balance grows every single day — not once a year. On a $100,000 tax bill left sitting for a few months, the leak adds up fast.

And if there's also a late-filing penalty on top? That increases the assessed amount, which makes the total feel like it snowballed overnight. It didn't happen overnight. It happened because nobody stopped the balance early.

4. Where rates sit in 2026

Right now, overdue CRA balances are running around 10% annually. The exact number depends on the quarter — CRA resets it every three months.

Ten percent. That's not a payable you can let sit until things calm down. That's an urgent financing problem.

So don't rely on a rate someone quoted you months ago. Check the current CRA prescribed rate for the quarter you're in. If your balance spans multiple quarters, different rates may apply to different periods. The CRA calculates based on actual dates. Not on when you planned to deal with it.

5. GST/HST vs income tax — why it matters

Income tax is your corporation's own tax bill. GST/HST is money you collected on behalf of the government. Big difference.

If you collected HST from customers and then used that cash for operations, payroll, or debt payments, CRA doesn't see a cash flow problem. They see trust money that was spent. And they treat it that way.

Honestly? This is the situation we see that goes south the fastest. A business with overdue HST needs to move faster because the optics are worse. Same goes for payroll remittances — money withheld from employees isn't ordinary corporate cash. Once it's spent elsewhere, the file gets ugly quickly.

6. What to do right now

Don't panic. But don't wait either. Here's the order that keeps files from getting worse:

1. Pull your statement of account. Separate T2 corporate tax, GST/HST, payroll remittances, and instalments. They're different balances with different rules.
2. Split base tax from interest and penalty. You need to know what's fixed and what's still growing. Arrears interest keeps running. Penalties don't.
3. File any missing returns. An unfiled T2, HST, or T4 keeps the penalty clock and the interest clock running at the same time. Stop both.
4. Pay the most dangerous balances first. GST/HST and payroll before corporate income tax. Trust-money arrears carry worse consequences.
5. Build a real payment plan. Waiting for a better month usually just means paying 10% interest longer.

And here's something we tell every client: clean bookkeeping matters more than people realize. If the return is wrong, the balance is wrong. If the balance is wrong, the interest calculation is wrong too. Get the numbers right before arguing about relief.

Need help sorting the books out before dealing with CRA? Take a look at catch-up bookkeeping or CRA audit support.