The Canada Revenue Agency (“CRA”) recently raised its prescribed interest rate that it charges on tax debts from 6% to 7% per annum. This is compounded daily.
A few weeks ago I wrote an article about why you should pay your tax assessment even if you are appealing it. The reason is that the CRA continues to charge interest until the tax debt is paid in full. If your appeal drags on for several years (and appeals can go on for years), it is possible that the tax debt could double or triple by the time the appeal is finally determined if you are unsuccessful in your appeal.By paying the tax debt during the appeal process, you stop the interest from running.
The good news is that they also raised the rate of interest that they pay on tax refunds to 5%. That is a better rate than you can get from your bank on a Guaranteed Investment Certificate (“GIC”). I was recently shopping around for a decent GIC and the best rate I could find was 4% if you locked it in for a year.
So the take away is that there are two benefits to paying your tax assessment while you are appealing it. One, you stop the interest from accruing and increasing the debt. Two, if you are successful on your appeal, you get your money back with interest at 5%, which is better than your bank will give you.
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