Updated Checked by the Tax-Services.ca editorial team How we check
If you can’t pay what you owe by April 30, file your return on time anyway. The late-filing penalty is 5% of the balance plus 1% for each full month, and an on-time return avoids it. Unpaid tax still collects interest from May 1, at 7% a year compounded daily in the last quarter of 2026. Call the CRA about a payment plan early.
What does $4,000 owing really cost?
On $4,000, the late-filing penalty is $320 after three full months and tops out at $680 after twelve. Interest at 7% adds about $23 for the first 30 days, roughly $144 over six months and about $290 over a year. The CRA sets the rate every quarter. The 7% applies from October to December 2026 and the rate for spring 2027 isn’t published yet, so treat the interest figures as estimates. The table compares three ways the same bill can play out.
| What you do | Penalty | Interest | Total extra |
|---|---|---|---|
| File on time, pay $500 a month until it’s gone | $0 | About $109 | About $109 |
| File on time, pay everything after six months | $0 | About $144 | About $144 |
| File three full months late, pay after six months | $320 | About $155 | About $475 |
These use daily compounding at a steady 7%, and the $500 a month plan clears the debt in nine months. Filing late costs far more than the interest does, and the penalty is the part you can avoid. Interest on tax owing isn’t deductible either, because the Income Tax Act bars deducting amounts paid under it.
Why does filing on time matter more than paying on time?
The penalty only applies when you file late and owe tax, and it grows each month the return is missing. The CRA page on Canada Revenue Agency: interest and penalties on late taxes gives the formula: 5% of the balance plus 1% for each full month late, up to 12 months, for a maximum of 17%. If you were penalized in one of the last three years and got a demand to file, the repeat penalty is 10% plus 2% a month for up to 20 months, a ceiling of 50%.
Interest is a separate charge. It compounds daily from the day after the due date on whatever is unpaid, penalties included. If you’re self-employed you get until June 15 to file, but the balance is still due April 30. Our missed tax filing deadline guide covers the case where the date has already passed.
How do you set up a payment plan with the CRA?
Set up pre-authorized debit payments in My Account for personal income tax, or phone the CRA. If you owe $1,000 or more, the Manage balance service in My Account may let you pay in full, pay part, schedule a series of payments or request a callback. The CRA bases the arrangement on what you can afford, and it asks about your income, expenses, assets and debts. The steps are on Canada Revenue Agency: arrange to pay your debt over time.
Before you call, pull out your latest notice of assessment and your income and bank details, and settle on a monthly amount you can actually manage. A modest figure you keep beats a big one you miss. Interest keeps running while you pay, so send extra when you can. If you’re going to miss a payment or pay less than agreed, call first. The CRA can take legal collection steps if you change the terms without telling it.
Can the CRA cancel penalties and interest?
It can, in particular situations. Under the taxpayer relief provisions you can ask the CRA to cancel or waive penalties and interest if circumstances beyond your control stopped you from meeting an obligation, such as a serious illness, a disaster or a CRA error. You apply with Form RC4288 or through My Account. The request has to fall within the 10 calendar years before the year you ask, and interest relief can be requested even after the balance is paid. The process is on Canada Revenue Agency: cancel or waive penalties or interest. A tight budget on its own usually isn’t enough, though financial hardship can support a request. The tax relief article has more.
What happens if you ignore the debt?
It starts with letters and calls. After that the CRA can keep your refunds and credits, such as the GST/HST credit, against what you owe. It can then issue a requirement to pay, which tells your employer or bank to send money to the CRA, usually with no court order. The CRA says it tries to make an arrangement before garnishing wages or seizing property, and it makes at least one attempt to warn you first. Keep your address current in My Account so the letters reach you, and phone the number on the letter. The CRA page Canada Revenue Agency: if you can’t pay in full or on time lists the options. If a letter has already landed, our CRA letter guide walks through it.
What can you do now if you expect to owe next April?
You’ve got months to prepare. The 2026 return is due April 30, 2027, and the self-employed deadline is June 15, 2027. Set aside a fixed amount from each pay cheque, and check whether an RRSP contribution by March 1, 2027 would shrink the bill. If the bill comes from a one-off such as a bonus, a cashed-out RRSP or a side gig, ask the payer or your financial institution whether they can withhold more tax next time. The 2027 tax calendar lists the dates in one place.
Where does this information come from?
Penalty, interest, payment arrangement, relief and collection rules come from Canada Revenue Agency pages as of October 2026; the $4,000 cost table is this site’s own daily-compounding estimate at a steady 7%. Checked in October 2026. This is an independent information site: we provide no services, we do not represent the CRA or any organization, and we do not guarantee that anything here is accurate or current. We accept no liability for decisions based on it. Check the official source before you rely on it. See the full disclaimer.
Frequently asked questions
Do I get a penalty if I file on time but can't pay?
No late-filing penalty applies if the return is in by the deadline. You'll still pay interest on the unpaid balance from the day after the due date, compounded daily. At 7% that's about $23 on $4,000 for the first 30 days.
What is the CRA's interest rate on tax owing right now?
The overdue-tax rate is 7% for October 1 to December 31, 2026. The CRA resets it every quarter, based on Treasury bill rates, so it can change in January. It applies to overdue income tax, CPP contributions and EI premiums.
Is the interest the CRA charges me tax deductible?
No. The Income Tax Act bars deducting amounts paid or payable under it, which covers tax, penalties and interest. So the $290 that $4,000 collects over a year at 7% comes straight out of your pocket with no tax relief.
Can I take a payment plan if I owe less than $1,000?
The Manage balance service in My Account is for debts of $1,000 or more, but you can still call the CRA to arrange payments on smaller amounts. Ask for the arrangement before the balance goes to collections, and keep every payment on time.