If you miss your tax deadline or underpay your balance owing, the CRA may charge penalties and interest. 

Calculating how much those extra costs will be can help you budget and decide whether to request relief. 

This article explains how CRA penalties and interest work, how you can estimate them (including sample calculations), and how to use online tools as rough calculators.

How CRA charges interest on late or unpaid balances

When you owe taxes or remittances and do not pay them by the due date, CRA starts charging interest from the day after the due date.

• Interest is compounded daily.
• CRA sets the interest rate every quarter, based on a prescribed rate.
• This interest applies to the unpaid tax, unpaid remittances (e.g. instalments), and even unpaid penalties themselves.

If you overpaid (CRA owes you a refund), CRA may pay you interest, but it is usually lower and only until the refund is issued or applied.

How CRA calculates penalties for filing late

In addition to interest, CRA may impose a late-filing penalty when you file your return after the deadline and you owe tax.

Here’s how the penalty works:

1. Base penalty is 5% of your balance owing for the tax year.
2. Then CRA adds 1% per full month the return is late, up to 12 months.
3. So if you’re 6 months late, that penalty is 5% + 6% = 11% of your balance owing, so long as 11% does not exceed the 12-month cap.
4. In more aggressive cases (e.g., repeat late filers), the penalty may be 10% base plus 2% per month, up to 20 months.

Note: The late-filing penalty is only charged if you have a balance owing; if CRA owes you a refund, you typically won’t get penalised for late filing.

How to estimate your penalty + interest: step-by-step

Here’s a process you can follow to approximate what you might owe, combining penalty and interest:

1. Determine your balance owing (the tax you still owe after credits, etc.).
2. Calculate the late-filing penalty:
   • Multiply the owed amount × 5% = base penalty
   • Add owed × (1% × number of full months late), up to 12 months
3. Calculate interest on the unpaid amount + penalty:
   • Use the daily compounding formula (or approximate with simple interest) from the day after the filing due date until your payment date
   • Use the effective quarterly CRA interest rate for that period
4. Add them together to get an estimate of total extra cost

Sample estimation

Suppose:

• Tax owed = $5,000
• You file 4 months late
• CRA interest rate in that quarter = 6% annually (0.06)
• You pay on the date you file

Late-filing penalty =
5% of $5,000 = $250
Plus 1% × 4 months = 4% of $5,000 = $200
Total penalty = $450

Interest ― approximate (not daily compounding for simplicity):
Amount on which interest accrues = $5,000 + $450 = $5,450
Interest for 4 months at 6% = $5,450 × 0.06 × (4/12) = $109

So rough estimate of additional cost = $450 + $109 = $559

In reality, daily compounding means actual interest would be slightly higher.

Instalment interest and penalties

If you’re required to pay tax by instalments and you pay late or less than required, CRA may charge:

• Instalment interest, compounded daily, based on the prescribed rate.
• A penalty if the instalment interest for the year exceeds $1,000. CRA uses a formula comparing “interest if no instalments were made” versus “actual interest” and picks the higher or checks a flat $1,000.

The instalment penalty calculation is more complex. But for many taxpayers, interest is the bigger component.

Using online calculators as a guide

You can use third-party tools as rough estimators, but always cross-check your results with CRA rules.

1. CoPilot Tax Penalty Calculator lets you enter the owed amount, filing date, and payment date to estimate penalties and interest.
2. CRACalculators.ca CRA Interest Calculator lets you input the amount due, due date, and payment date to estimate interest.
3. Streamline Accounting’s CRA Interest Calculator allows a similar input of owed amount, interest rate, and days overdue.

These are for estimation only and not official CRA tools.

When CRA may waive or cancel penalties/interest

CRA may cancel or waive penalties or interest under taxpayer relief provisions if you can show you couldn’t meet obligations due to circumstances beyond your control (serious illness, natural disaster, etc.).

Requests typically must relate to a period within the last 10 years.

You can use CRA’s My Account or Represent a Client to request relief or a statement of interest.