Interest and penalty charges

Any instalment interest and penalty charges that apply will show on your 2014 notice of assessment or notice of reassessment.

Instalment interest

We charge instalment interest if all of the following conditions apply:

  • we send you an instalment reminder in 2014 that shows an amount to pay;
  • you are required to make instalment payments in 2014 (see Who has to pay tax by instalments?); and
  • you did not make instalment payments, or you made payments that were late or less than the required amount.

We calculate the interest on each instalment that you should have paid using the payment option that calculates the least amount of interest up to the balance due date. Then we calculate the interest on each instalment you did pay for the year, starting from the later of the date the payment was made or January 1 up to the balance due date. We charge the difference between these two amounts if the difference is more than $25.

Instalment interest is compounded daily at the prescribed interest rate. This rate can change every three months. To get the current interest rate, see Prescribed interest rates.

If you realize during 2014 that you paid less than your required instalment payment, or that you did not pay it on time, you can reduce or eliminate an instalment interest charge by overpaying your next 2014 instalment payment or by paying it early. Credit interest is earned on early or excess instalment payments made between January 1 and the balance due date for the purpose of offsetting any instalment interest that we may charge in the same tax year. This credit interest is not refundable, and it cannot be applied to an amount owing. Required instalment amounts are not adjusted for any specified future tax consequence, such as the claiming of a loss carry back.

Instalment penalty

You may have to pay a penalty if your instalment payments are late or less than the required amount. We apply this penalty only if your instalment interest charges for 2014 are more than $1,000.

To calculate the penalty, we determine which of the following amounts is higher:

  • $1,000; or
  • one-quarter of the instalment interest that you would have had to pay if you had not made instalment payments for 2014.

Then, we subtract the higher amount from your actual instalment interest charges for 2014. Finally, we divide the difference by two and the result is your penalty.

Example

For 2014, John made instalment payments that were less than he should have paid. As a result, he has $2,500 of actual instalment interest charges for 2014. If John had not made any instalment payments in 2014, his instalment interest charges would have been $3,200. Since one-quarter of $3,200 is $800, we subtract $1,000 (the higher amount) from $2,500. The difference is $1,500. Then, we divide $1,500 by two. John's penalty is $750.

Forms and publications

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