Late filing of tax returns and late payment of taxes are two different concepts, which could increase overall tax owed significantly. The interest penalty on late payment of taxes is charged when installments and/or final payments of tax are late or insufficient.

Every individual is required to file tax returns with Canada Revenue Agency (CRA) by April 30^th (regular filing date) or June 15^th (if they, or their spouse, operate a business). The inability of an individual to file taxes within the due date is subject to a 5% immediate penalty, AND 1% for each complete month on the amount owing (the penalty doubles for repeat offenders). The interest is then charged on the outstanding balance as well as on the penalty and the interest is compounded daily. Interest is calculated using the prescribed rate of interest which is updated quarterly. Prescribed rates for 2024 are:

Example: Mr. Jackson is an employee and has tax payable of $75,000 based on his income in the 2023 calendar year. He files his tax return and pays the outstanding tax on June 9th, 2024. His penalty and interest are calculated as follows:

Note, for simplicity, the above table does not consider compounded daily interest.

The tax is payable by April 30^th, therefore, the interest on tax payable is calculated for 40 days (from April 30^th until it is paid on June 9th) using a 10% prescribed rate. The tax return was due on April 30^th (as he is not operating a business) therefore the interest on late filing penalty is calculated for 40 days as well.   Note, if Mr.Jackson or his spouse were self-employed, the filing deadline would be on June 15th, so there would only be interest on the late payment (as he filed before the deadline on June 9th)

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