https://www.canada.ca/en/revenue-agency/services/payments-cra/individual-payments/income-tax-instalments/interest-penalty-charges.html
Required tax instalments for individuals
Interest and penalty charges
Instalment interest and possible penalty charges will be applied if you do not pay your required tax instalments or paid insufficient amounts.
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Instalment interest
Instalment penalty
Reduce your instalment interest and penalty charges
Instalment interest
You will be charged instalment interest if all the following apply:
You are required to pay by instalments in 2022
You receive an instalment reminder in 2022 that shows an amount to pay
You did not make any of your instalment payments, paid late, or paid less than what you had to pay
We charge instalment interest on all late or insufficient instalment payments. Instalment interest is compounded daily at the prescribed interest rate, which can change every three months.
How we calculate your interest
$A
Interest on each instalment payment you should have paid
We calculate interest from the day it was due to your balance due date, based on the payment calculation option that results in the least amount of interest.
minus by$B
Interest on each instalment you paid
We calculate the interest for the year starting from the date the payment was made or January 1 (whichever date is later) up to the balance due date.
equals$C
Your charge (if more than $25)
The interest you owe is the difference between A and B.
Instalment penalty
You may have to pay a penalty if your instalment payments are late or less than the required amount. We apply this penalty only if your instalment interest charges for 2022 are more than $1,000.
To calculate the penalty, we determine which of the following amounts is higher.
If a flat rate of $1,000 is higher: Option 1 of 2
You are charged: $1,000
If 25% of the interest is higher: Option 2 of 2
You are charged: 25% of the instalment interest you would have paid if you had not made instalment payments for 2022
We subtract the higher amount from your actual instalment interest charges for 2022. We then divide the difference by 2 and the result is your penalty.
Example – Instalment penalty and interest
Reduce your instalment interest and penalty charges
You can reduce or eliminate interest and penalties if you do one of the following:
overpay your next instalment payment
pay your next instalment early
This will allow you to earn instalment credit interest. This credit interest is not refundable and can only be used against any interest charges on late payments for the same tax year.
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