Borrowing to Pay a CRA Tax Bill Costs More Than CRA Does, With One Exception
A balance owing to the Canada Revenue Agency is a loan, whether or not anyone involved calls it one, and whether to move it onto credit has a measured answer rather than an opinion. CRA charges 7% on overdue income tax, compounded daily. The Bank of Canada measures what chartered banks charge on the six kinds of credit below, and only the two secured on a home come in cheaper than CRA. Data as of 7 November 2026.
CRA charges 7%, and daily compounding makes that 7.25%
The prescribed rate CRA charges on overdue income tax is 7%, in effect from October 1, 2026 to December 31, 2026. The first quarter of 2027 comes to 7% as well, though that figure is our derivation from the October 2026 Treasury bill auctions under Regulation 4301 and not something CRA has published.
The rate on the page is not the cost. Section 248(11) of the Income Tax Act requires interest computed at a prescribed rate under s.161(1) to be “compounded daily”, and on a 365-day basis that turns 7% into 7.2501% over a year, 7.25% rounded. On $5,000 left with CRA for twelve months, that is $362.50.
Nothing else in this piece compounds. Every bank rate below is a stated annual percentage, which is how the Bank of Canada publishes them, and every bank dollar figure is that stated rate used simple.
Filing on time is free, and no loan touches the penalty
One charge has to come off the table before any rate comparison, because borrowing cannot move it. Filing on time costs nothing and removes the late-filing penalty entirely. That penalty is a separate charge from interest: 5% of the balance unpaid at the deadline on the first day late, plus 1% for each complete month after that, to a maximum of twelve months. It is a toll rather than a rate, so paying CRA with borrowed money does not shrink it and paying CRA slowly does not grow it.
It is also the charge to deal with first, because its base is measured at the deadline rather than today: our coverage of the CRA late-filing penalty sets out how the 5% and the monthly 1% are calculated, the cases where both come to nil, and the route by which CRA can cancel or waive interest. Everything that follows here is about interest only, and it is only a live question for someone who has already filed.
What chartered banks charge on balances people already carry
The Bank of Canada collects the average rates chartered banks charged on outstanding credit balances, which is the right series for this question: not what a bank advertises on new lending, but what it charges on a balance already sitting there. Month-end August 2026 is the latest month published, a reading from before the October 28 rate decision, so the floating rates below predate prime’s 25 basis point increase and the secured line in particular will have moved up with it since.
| Kind of credit, August 2026 | Rate, stated and used simple | Against CRA’s 7.25%, compounded daily |
|---|---|---|
| Personal line of credit, secured | 3.90% | 3.35 points cheaper |
| Residential mortgage, uninsured | 4.20% | 3.05 points cheaper |
| Personal loan plans | 7.53% | 0.28 points dearer |
| Personal line of credit, unsecured | 8.36% | 1.11 points dearer |
| Other personal credit | 11.35% | 4.10 points dearer |
| Credit card balances | 21.35% | 14.10 points dearer |
Six kinds of borrowing at month-end August 2026 against the 7.25% a year CRA’s 7% comes to compounded daily, with only the two secured on a home coming in under it.
The same $10,000, carried for one year, five ways
| Where the $10,000 sits for a year | Basis | Interest | Against CRA |
|---|---|---|---|
| CRA, overdue income tax at 7% | compounded daily | $725.01 | baseline |
| Secured personal line of credit, 3.90% | stated, simple | $390.00 | saves $335.01 |
| Personal loan plans, 7.53% | stated, simple | $753.00 | costs $27.99 more |
| Unsecured personal line of credit, 8.36% | stated, simple | $836.00 | costs $110.99 more |
| Credit card balances, 21.35% | stated, simple | $2,135.00 | costs $1,409.99 more |
Personal loan plans land within a third of a point of CRA and the unsecured line within about a point, both dearer, and the compounding convention only widens those two gaps: on monthly compounding, 7.53% would be an effective 7.80% and the gap 0.55 points rather than 0.28, while 8.36% would be 8.69% and the gap 1.44 rather than 1.11. Inside that personal loan plan category the Bank of Canada publishes an “of which: auto loans” sub-line that does come in under CRA, at 6.83% on outstanding balances and 6.59% on new lending, but that money buys a vehicle, so it is not credit anyone can draw on to settle a tax bill. The bottom row is not close to anything.
Here is the sharpest way to see it. Thirty days carrying a balance on a credit card at 21.35% costs 1.755% of that balance, and the same 1.755% takes 90.7 days to accrue with CRA at 7% compounded daily. One month on the card is three months with CRA. Ninety days on the card is 267.5 days with CRA. A full year on the card is 1,009 days with CRA, which is 33.2 months.
Credit secured on a home is the exception, and what it costs is not money
The two of those six categories that come in under CRA are both secured on a home: the secured personal line of credit at 3.90% and the uninsured residential mortgage at 4.20%, both stated and used simple, against the 7.25% a year CRA’s 7% comes to compounded daily. That mortgage figure averages mortgages already outstanding rather than money available this month, and reaching home equity that way means refinancing; new uninsured mortgage lending in the same month was 4.34%, still far under CRA, so the ranking holds on either reading. Secured means borrowing against a property.
On the line of credit this is not a one-month artefact: in 50 of the 56 months on file since January 2022 the rate on outstanding secured balances sat at or below prime, a median of prime minus 0.81 points, and in August 2026 prime minus 0.55.
The saving against CRA’s compounded 7.25% is real and it is paid for by putting a house behind a debt that did not previously have one. That is the whole content of the word “secured”.
How large the saving gets depends on how long the balance sits, because the advantage is a rate rather than a one-time discount. Per $10,000:
| Balance sits for | CRA at 7%, compounded daily | Secured line at 3.90%, stated and simple | Saving |
|---|---|---|---|
| 1 month | $57.69 | $32.05 | $25.64 |
| 3 months | $176.04 | $97.23 | $78.80 |
| 6 months | $355.17 | $194.47 | $160.70 |
| 12 months | $725.01 | $390.00 | $335.01 |
On a balance someone means to clear in a few months, that is tens of dollars rather than hundreds, not the $335.01 a full year is worth.
The line of credit’s rate moves with prime, and prime has just moved: the Bank of Canada raised its target for the overnight rate to 2.50% on October 28, 2026, and prime followed to 4.70% by November 4, both steps of 25 basis points. The next decision is December 9, 2026, and since prime is the side of this comparison that responds to it, our coverage of the Bank of Canada’s December rate decision is where that half gets revisited.
CRA’s 7% moves in steps, and prime does not
Regulation 4301 sets the rate charged on amounts owed to the Receiver General as the simple arithmetic mean of 3-month Government of Canada Treasury bill auction yields during the first month of the preceding quarter, rounded up to the next higher whole percentage, plus 4 per cent. The round-up is why the rate moves in steps rather than drifting, and because that mechanism is what lets a reader see the next quarter before CRA announces it, the quarter-by-quarter derivation sits in our piece on the CRA prescribed interest rates for the first quarter of 2027.
The steps are wide. CRA’s overdue rate has been 7% for six straight quarters, from the third quarter of 2025 through the fourth quarter of 2026, and ranged from 5% to 10% back to the first quarter of 2022. Prime covered a 475 basis point range over the same span, starting at 2.45% and standing at 4.45% at the start of this quarter.
A 7% charge implies a rounded-up base of 3%, so the quarterly T-bill mean is above 2% and at or below 3%. The latest auction on file, November 3, 2026, came in at 2.61%, which is 39 basis points below the 3.00% a quarter’s mean has to exceed before the rate steps up to 8%.
CRA’s prescribed rate on overdue tax at each quarter start since the first quarter of 2022, above prime throughout, beside prime’s 7.20% peak and 275 basis point fall and the card rate.
The choice is between a rate fixed into next spring and one that floats
CRA’s side of this is fixed for now. The rate is 7% for the fourth quarter of 2026 and, on our derivation from the October auctions, 7% again for the first quarter of 2027, and the first quarter the December 9 decision can reach is the second quarter of 2027. The secured line of credit is the other kind of rate: it moved with prime by November 4 and can move again next month, so a reader taking the line of credit swaps a rate fixed to the end of March for one that does not stay still.
The cushion is wide. The secured line would have to rise 335 basis points, from 3.90% to 7.25%, before it stopped being cheaper than CRA. On its August 2026 spread of prime minus 0.55, that means prime reaching 7.80%, which is 310 basis points above the 4.70% it had reached by November 4.
Waiting for cuts to fix an expensive card is a weaker plan than it sounds. On month-start readings throughout, prime fell 250 basis points between July 2023 and August 2026, from 6.95% to 4.45%. The secured line of credit fell 165 of those, from 5.55% to 3.90%, which is 66% of prime’s move. The average rate on outstanding credit card balances rose 106 basis points, from 20.29% to 21.35%.
For a reader with no home equity to borrow against, the finding here is the plain one: the other four, from personal loan plans to credit cards, all cost more than leaving the balance where it is, so the money goes further paying CRA down than moving the debt somewhere else.
Disclaimer: The content on bestcanadianstocks.ca is for informational and entertainment purposes only and does not constitute financial advice. Past performance is not indicative of future results. Always consult a qualified financial advisor before making investment decisions. The prescribed rate CRA charges on overdue income tax is 7% for the fourth calendar quarter of 2026, in effect from October 1 to December 31, 2026, from CRA’s own quarterly announcement. The same 7% for the first quarter of 2027 is this site’s derivation from Income Tax Regulations s.4301 published on November 5, 2026, which CRA has not published, and it is labelled as ours wherever it appears. Regulation 4301(a) sets the rate as the simple arithmetic mean of 3-month Government of Canada Treasury bill auction yields during the first month of the preceding quarter, rounded up to the next higher whole percentage where the mean is not a whole percentage, plus 4 per cent, so a mean of exactly 3.00% leaves the base at 3% and the rate at 7%. Income Tax Act s.161(1) charges interest at the prescribed rate on the excess for the period it is outstanding, and s.248(11) compounds interest computed at a prescribed rate under s.161(1) daily. The twenty quarterly rates from the first quarter of 2022 to the fourth quarter of 2026 are CRA’s own twenty published announcements. Every bank rate is from the Bank of Canada’s series on interest rates charged by chartered banks for new and existing lending, Valet groups A4_RATES_CONSUMER and A4_RATES_MORTGAGES, month-end August 2026, which is the latest month published and ten weeks before the October 28, 2026 policy decision. The outstanding-balance block is used throughout and the funds-advanced block is named wherever it is quoted. The prime rate is Valet V80691311 and the target for the overnight rate is V39079. All dollar amounts, effective rates, spreads, day equivalences and horizon figures are our arithmetic from a single engine that both charts import, so a chart cannot disagree with the article. Its compounding convention is fixed by a control test reproducing to the cent the $362.50 and $256.34 this site published on November 5, 2026, and a second control test confirms the Bank of Canada series were read correctly by checking that the prime to policy rate spread is 220 basis points on both sides of the October 28 decision and that each block total sits inside the range of its own components. Bank rates are stated annual percentages used simple, CRA’s is compounded daily, and no figure mixes the two without naming the basis in the same line.
