It is important to pay your taxes due in time (by April 30th) if you don’t want to accumulate penalties and interests. The penalty and interest compounds fast, so the sooner you pay it the lesser interests you will owe.
Should I Pay Off My Taxes With A Personal Loan?
It depends. You need to calculate how much penalty and interest you would owe CRA by the time you pay the balance versus the interest on the loan.
What happens if you do not pay the CRA on time?
Late Interest
If you have a balance owing from the previous year, the CRA charges a penalty interest depending on the type of income you reported. Also, there is a compound daily interest on your balance and that includes interest on penalties starting the day after your filing due date if you are late filing the return.
The rate of interest charged can change every three months. Plus, if you have amounts owing from previous years, the CRA will continue to charge compound daily interest on those amounts as we mentioned above, but they can also double the penalty for every year late – don’t forget interest is also charged on the penalty.
Be sure to give yourself plenty of time to file so you can plan ahead of time on how you would pay the balance due.
Late Penalties
If you file your tax return after the due date and you owe money on that return, the CRA will charge you a late-filing penalty of 5% of your total balance owing, which grows by 1% every month that your return is late, to a maximum of 12 months.
Additionally, if you have been assessed previous late-filing penalties, your penalty could double to 10%, plus 2% of your balance owing for each full month your return is late (to a maximum of 20 months). Before you know it, the penalties add up.
Can I use a personal loan to pay off my taxes?
Yes – absolutely!
A personal loan may be a good option to pay off your taxes. Let’s work through the pros and cons to see if a personal loan is right for you.
Pros of taking out a personal loan to pay off taxes
Favorable loan terms
You should absolutely shop around to find the personal loan with the most favorable loan terms. This means a low-interest rate and flexible payment options. Your interest rate should be one of the main deciding factors when comparing loans.
The loan amount
You’ll need to find a loan that covers the amount you owe to the CRA, but at the same time, you also don’t want to risk taking on too much debt.
Loan fees (or lack thereof)
If you want to pay off your loan early, some lenders will not charge you any repayment fees. These seemingly small perks can make all the difference when you’re working towards paying off your debt.
Cons of taking out a personal loan to pay off taxes
Hidden costs
Be sure to carefully read the terms and conditions of any loan you are considering. Origination fees are standard because they are what fund most online platforms, however, be wary of any unadvertised fees or costs, such as loan repayment fees. Do not be afraid to ask the loan provider any additional questions you may have because it is your money, after all.
Too-high Interest rates
It is important to make sure the interest rate you are getting on a personal loan is favorable. Depending on the lender, some interest loans may not be as competitive as others which is why it’s important to shop around and weigh your options.
Can CRA forgive the debt?
Yes, in some cases you can apply for relief or to waive the penalty or interest if you weren’t able to pay the balance due to circumstances out of your control. Use for RC4288 Request for Taxpayer Relief- Cancel or Waive Penalties or Interest to request a portion of the whole extra charges removed. CRA will consider your request only if it relates to a tax year or fiscal period ending in any of the 10 calendar years before the year in which you make your request
TurboTax software offers different products that can help you plan ahead for your tax season. Consider TurboTax Live Assist & Review if you need further guidance, and get unlimited help and advice as you do your taxes, plus a final review before you file. Or, choose TurboTax Live Full Service* and have one of our tax experts do your return from start to finish.
*TurboTax Live™ Full Service is not available in Quebec.