When you appeal a tax assessment or re-assessment from the Canada Revenue Agency, interest is still being accumulated on the assessed amount. The prescribed annual interest rate that they are charging you today is 6%. And that interest is compounded daily. This could cause your tax debt to double or triple by the time your tax appeal is finally determined years later.
Paying the tax bill while you are appealing it stops the interest from accumulating.
Secondly, if you are successful on your appeal and the assessment is vacated, the CRA will refund what you paid them with interest. Currently, the prescribed rate of interest that they pay on monies owed to taxpayers is 4% for individuals and 2% for corporate taxpayers. That’s better than most GIC rates!
To me it’s a “no lose” situation to pay the tax assessment while you are appealing. Even if you don’t have the money to pay all of it, you should consider paying down what you can, and / or borrowing the money at a lower rate than what they are charging you so you can pay it and stop the interest from accumulating. Of course, check with your financial advisor first to see if that is workable for you.
The prescribed rates of interest are calculated every calendar quarter and are published on the CRA’s website.