CRA Instalment Interest and Penalty Calculator
Missed or underpaid instalments produce interest from each due date, offset by anything paid early, and a further penalty once the interest passes a threshold. Work out roughly what has accrued and what paying now would stop.
interest and penalty
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Interest by Instalment
| Instalment | Day Due | Shortfall | Days Running | Interest |
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How the Penalty Is Worked Out
| Step | Basis | Amount |
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What Paying Today Would Do
| Item | Basis | Amount |
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Points That Decide This
What to Do Next
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Disclaimer: This page produces an estimate from the inputs you provide and does not reproduce an assessment. Instalment interest is computed at the prescribed rate, compounded daily, on the difference between the instalments that were required and those that were made, running from each instalment due date; amounts paid early or in excess of what was required generally earn offsetting interest, commonly described as contra interest, which reduces the charge. The prescribed rate is set by regulation and changes from time to time, generally quarterly; this page applies a single editable rate across the whole period, so where the rate changed during the year the result will differ from the amount assessed, in either direction. The schedule here spaces instalments evenly across a three hundred and sixty-five day year and applies a single average payment amount and a single average number of days late to every instalment, which is a simplification of an actual payment history. An instalment penalty applies where instalment interest exceeds a threshold amount, and is computed as a proportion of the amount by which the interest exceeds the greater of that threshold and a proportion of the interest that would have been payable had no instalments been made at all; the figures used for the threshold and both proportions are editable inputs on this page and should be confirmed against current published figures. Whether instalments were required at all, in what amounts and on what dates, depends on the corporation’s circumstances and on which of the permitted calculation methods applies; this page assumes the required amounts you enter are correct. Interest and penalties may in some circumstances be the subject of a request for relief, which is discretionary and subject to a limitation period. Amounts shown here should not be relied on for payment, remittance or financial reporting purposes. This page is general information, not tax advice.
Interest Runs From Each Due Date, Not From the Year End
This is the part that makes the number larger than people expect. Each missed instalment starts accruing on its own due date, so a payment missed in month two has been running for far longer than one missed in month eleven by the time the year closes.
It also keeps running past the year end, to the date the balance of tax is due. A corporation that notices the problem while preparing its return is looking at interest that has been accumulating for well over a year on the earliest instalments.
Compounded daily, not annually. At ordinary prescribed rates the compounding is not dramatic over a few months, but it is why the figure never quite matches a simple rate-times-amount calculation done on the back of an envelope.
Paying Early Earns Credit Against Paying Late
The system is not one-directional. Amounts paid early, or in excess of what was required, earn offsetting interest that reduces the charge on the amounts paid late.
That has a practical consequence worth acting on: a corporation that is behind can reduce the charge by paying now rather than waiting for the balance due date, and in some cases eliminate it. The credit works backwards against the earlier shortfalls.
Waiting until the balance due date is the expensive choice. Every day between now and then adds to the charge, and the offsetting credit for paying today applies against interest that has already accrued. Doing it sooner is strictly better.
The Penalty Has Two Moving Parts
Beyond a threshold, a further penalty applies on top of the interest. It is not a simple percentage of the shortfall, and the way it is built means it rarely catches a corporation that was modestly short.
The calculation compares your actual instalment interest against the interest that would have arisen had you paid nothing at all. The penalty applies to the amount by which your interest exceeds the greater of the threshold and a share of that no-instalment figure.
| Step | What It Does |
|---|---|
| Work out actual instalment interest | The starting figure |
| Work out interest had nothing been paid | The comparison figure |
| Take the greater of the threshold and a share of that | The floor |
| Apply the penalty rate to the excess over the floor | The penalty |
The effect is that a corporation which paid most of what it owed is largely protected, because the comparison figure is high relative to its actual interest. One that paid nothing is squarely in range.
Paying Something Beats Paying Nothing
The structure of the penalty rewards partial payment specifically. Because the floor is tied to what the interest would have been with no instalments at all, every payment made during the year raises the bar the penalty has to clear.
So a corporation that cannot pay the full instalments should still pay what it can, on time, rather than deciding to deal with it at the year end. That decision alone frequently moves a file out of penalty territory.
Relief Exists, and It Is Discretionary
Interest and penalties can in some circumstances be the subject of a relief request. It is discretionary rather than automatic, subject to a limitation period, and generally responds to circumstances beyond the corporation’s control rather than to having forgotten.
It is worth knowing the route exists. It is not worth planning around, and a request is considerably stronger where the corporation has since brought everything current.
What This Calculator Does Not Do
- Reproduce the assessment, which uses the real rate for each quarter
- Handle a rate that changed mid-year, since one rate applies here
- Take an exact payment history, rather than averages
- Decide whether instalments were required or in what amount
- Cover short taxation years or amalgamations
- Assess a relief request or its prospects
If the notice has already arrived, the useful work is different. Our corporate tax cleanup service checks whether the required instalments were actually what was assessed, whether a cheaper calculation method applied, and what to pay now to stop the charge growing. The instalment calculator covers next year, so this does not repeat.
Frequently Asked Questions
Common questions on instalment interest.
Related Calculators and Guides
More on corporate tax arrears.
Stop the Charge Before You Argue About It
Send us the notice and your payment history. We will check whether the required instalments were what was assessed, whether a cheaper calculation method applied, and what to pay now so the figure stops growing while the rest is sorted out.