If you pay your GST/HST late, the Canada Revenue Agency charges interest at the prescribed rate on your unpaid net tax, compounded daily starting the day after the deadline. If you also file the return late and owe money, a separate penalty of 1% of the unpaid amount kicks in immediately, plus 0.25% for each additional month the return is outstanding, up to 12 months. The prescribed interest rate for the third quarter of 2026 is 7%.1Canada.ca. Interest Rates for the Third Calendar Quarter Because interest and penalties run at the same time and both attach to the same balance, the total can climb quickly.
Everything below is calculated on your net tax: the GST/HST you collected or were required to collect during the reporting period, minus your input tax credits and any other deductions you’re entitled to claim under section 225 of the Excise Tax Act.2Government of Canada. Excise Tax Act 225 – Net Tax If that figure is positive, you owe the CRA. If it’s negative or zero, most of the charges below don’t apply.
Interest on Overdue Net Tax
Under section 280 of the Excise Tax Act, interest accrues on any GST/HST amount you failed to pay or remit by the due date.3Government of Canada. Excise Tax Act 280 – Interest on Unpaid Amounts The prescribed rate equals the average yield on 90-day Government of Canada Treasury Bills, rounded up to the nearest whole percentage, plus 4%.4Canada.ca. Penalties and Interest The CRA resets the rate every quarter, and for Q3 2026 the GST/HST arrears rate sits at 7%.1Canada.ca. Interest Rates for the Third Calendar Quarter
Interest compounds daily. Each day’s unpaid interest is added to the outstanding balance, and the next day’s charge is calculated on that larger amount.5Government of Canada. href=”https://laws-lois.justice.gc.ca/eng/acts/E-15/section-280.html” target=”_blank” rel=”noopener”>Excise Tax Act 280 – Interest on Unpaid Amounts The clock doesn’t stop while you dispute the assessment or wait on cash flow. It runs until you pay in full.
Late Filing Penalty
Filing your return late when you have a balance owing triggers a penalty under section 280.1 of the Excise Tax Act.6Government of Canada. Excise Tax Act 280.1 – Failure to File a Return It has two parts:
- A base penalty of 1% of the unpaid net tax as of the filing deadline.
- An additional 0.25% of that unpaid net tax for each complete month the return remains outstanding, capped at 12 months.
Take a registrant who owes $5,000 and files three months late. The base penalty is $50, the monthly add-on is $37.50 (3 × 0.25% × $5,000), and the total late filing penalty is $87.50. At the twelve-month cap, the penalty maxes out at 4% of the unpaid amount. This penalty does not apply if your return shows a zero balance or a refund.4Canada.ca. Penalties and Interest
The penalty and the interest run in parallel on the same unpaid net tax, so a return that’s both late-filed and unpaid attracts both charges from day one. One small break: if the combined penalties and interest for a reporting period come to less than $25 and you pay the full balance, the CRA may cancel those charges.4Canada.ca. Penalties and Interest
Missed or Underpaid Instalments
Annual filers whose net tax exceeds a set threshold are required to make quarterly instalment payments during the year rather than paying the whole balance when the return is due.7Canada Revenue Agency. General Information for GST/HST Registrants If you skip an instalment or pay less than required, section 280(2) of the Excise Tax Act charges interest at the prescribed rate on the shortfall.8Government of Canada. Excise Tax Act 280 – Interest on Instalments
The interest runs from the day after the instalment was due until the earlier of the day you pay it or the day your annual return is due. Rate and daily compounding are the same as for overdue net tax. So even if you plan to make everything current by year-end, holding instalment money back still costs you interest for the months it was late.
Penalty for Filing on Paper
For reporting periods ending in 2024 and later, all GST/HST registrants must file electronically, with limited exceptions for charities and certain listed financial institutions.9Canada Revenue Agency. Reporting Requirements and Deadlines – File Your GST/HST Return Filing a paper return without an exemption triggers a separate penalty under section 280.11 of the Excise Tax Act, even when the return is on time and the balance is paid in full.10Justice Laws Website. Excise Tax Act 280.11 – Failure to File Electronically The amount is set by regulation and rises for repeat offences.
Gross Negligence Penalty
Section 285 of the Excise Tax Act applies when a return contains a false statement or omission made knowingly or through gross negligence. The penalty is 25% of the resulting tax shortfall, with a minimum of $250.11Government of Canada. Excise Tax Act 285 – False Statements or Omissions Typical triggers include inflated input tax credits, underreported sales, and fictitious rebate claims.
The CRA is not required to show you intended to cheat. Gross negligence covers indifference to whether the return is correct, so signing off on numbers without any reasonable effort to verify them can be enough. On a $40,000 shortfall, the section 285 penalty alone adds $10,000, and it stacks on top of interest and any late filing penalty.
Director Personal Liability
If a corporation fails to remit its net tax, section 323 of the Excise Tax Act makes the directors jointly and severally liable for the unremitted amount, together with the interest and penalties on it.12Government of Canada. Excise Tax Act 323 – Liability of Directors The CRA can only pursue a director after it has tried to collect from the corporation and failed, which usually means a certificate has been registered in Federal Court and execution returned unsatisfied, or the corporation has entered bankruptcy or dissolution.13Canada.ca. Information on Deemed Trust
Two protections matter. A due diligence defence applies if you can show you took the care a reasonably prudent person would have taken to prevent the failure: monitoring filings, keeping systems in place for timely remittance, and asking questions when cash gets tight. And the CRA cannot assess a director more than two years after they last ceased to be a director of the corporation.12Government of Canada. Excise Tax Act 323 – Liability of Directors
Getting Penalties or Interest Cancelled
The CRA can cancel or waive penalties and interest in specific circumstances, including natural disasters, serious illness, CRA processing errors, and other events beyond your control. You apply on Form RC4288, or through the “Request relief of penalties and interest” service in My Business Account or Represent a Client.14Canada Revenue Agency. RC4288 Taxpayer Relief Request – Cancel or Waive Penalties and Interest Each request is decided on its own facts.
If the issue is an error or omission you want to correct before the CRA finds it, the Voluntary Disclosures Program is the other route. For applications received on or after October 1, 2025, all VDP applicants are eligible for up to 100% penalty relief, though the actual outcome depends on whether the disclosure counts as unprompted (you came forward before any enforcement action) or prompted (you came forward after learning the CRA was already looking).15Canada.ca. Voluntary Disclosures Program
Disputing an Assessment
If you think the CRA has calculated your net tax, penalties, or interest incorrectly, you have 90 days from the date the notice of assessment was sent to file a Notice of Objection.16Government of Canada. Excise Tax Act 301 – Notice of Objection The objection must set out your reasons and the relevant facts. Filing it does not pause interest, so charges continue to accrue on the disputed balance. Many registrants pay the assessed amount to stop the interest and pursue a refund if they win.
If the CRA denies your objection, or 180 days pass with no response, you can appeal to the Tax Court of Canada.17Tax Court of Canada. Get Started Missing the 90-day deadline is not necessarily fatal, but you’ll have to apply for an extension of time, and the Court decides whether to grant it.