Higher Interest Won’t Lead to Faster CRA Debt Repayment, Pros Say

The prescribed interest rate on overdue taxes is 9% for the second quarter. Will taxpayers now pay off tax debt sooner? Not according to 80% of tax and financial advisors who responded to our April poll. The pros say there are other factors to consider, including paying off other higher interest rate debt and they highlight that increases are only punitive when most taxpayers would pay off their CRA debt if they had the means to. Here are their comments:

9% is still lower than Credit Card. I council my clients to pay highest rates off first, but set up some type of negotiated payment with CRA to stop them from starting any action.

By John Reid on April 19, 2023

Paying off debt of any kind is a matter of strategy, cash flow and budgeting. Higher interest rates aren’t an incentive to pay off debt for the average Canadian, it just makes it tougher at first and rings the wakeup call bell to get a handle on managing money better.

By Norm Robidoux on April 19, 2023

I used to work at a CRA call centre and took a call from a lady concerned about paying off her balance, so much so that she was considering taking a cash advance with her credit card. At the time the CRA interest rate was considerable lower than 9%. The CRA may have considered my answer “off-side”, however, I advised her not to do that since the credit card interest was about 20%. I gave her the contact info to set-up a monthly payment plan. The take away from this is most taxpayers want to pay off their balances; however, as already noted, many just don’t have the means of doing so.

By Michael Connors on April 12, 2023

I’ve talked to two clients in the last two days about outstanding balances with CRA.  They would love to pay them but simply don’t have the funds.  I understand the government doesn’t want people living on the bank of CRA, but for many, there’s no choice.  A punitive 9% interest rate isn’t going to change that.  It just makes it that much harder for people to get caught up.

By Sue Hopcroft on April 12, 2023

This is one of the areas that CRA (and the Federal government) should be providing a significant tax break. By reducing the prescribed rate or eliminating the late penalties, the government is sending a message that it understands the burden on Canadian Families. After all, the policy rate is currently 4.5% and it appears punitive to be charging Canadians more or even the same as a bank or credit may charge.

By Troy Harrison on April 06, 2023

9% is too much. If the tax payer cannot pay on time, for sure they cannot pay the overdue at all.

By Sally T Busmeon on April 05, 2023

A lot of clients who do not have the means to pay their debts and require a longer term to pay them are not going to be able to pay them off sooner.  Some might, if they are able, but I would think the majority will likely carry it longer or not pay at all.

By Robert A Litschel on April 05, 2023

The higher the rate the more motivated people are, but do they have the cashflow to reduce their debt. Let’s talk about timing ! Could CRA not add more fuel to the fire, when calling all tax payers to pay an even higher interest rate.. I have started the tax planning journey with my clients for a few years now,  and once you open the tax planning door,  it becomes very magnetic,  as more and more Canadians hike through the tax wilderness in search of that golden tax relief horizon - staying away from paying installments, avoiding claw backs, utilizing RRSPs, splitting pensions, better retirement planning, and taking advantage of every possibility deduction they can.
If they owe at the end, then 9% should be an attractive number for them to lose sleep until the CRA is paid off!  Let’s face it, it’s not pretty out there and 9% just make Canadians feel less confident & less comfortable with our Government. 

By Ann Laurin on April 12, 2023

Thanks to all who participated, please weigh in on this month’s poll question: Do you think that the government should subsidize tax return fees to people can get their benefits for free?

Tax season 2024 started this week, the CE Summit hybrid learning event provides everything you need to help your clients improve their financial lives. Enrol by the May 15 early-bird deadline.