Understanding interest

When we charge or pay interest

We will charge interest if you make late or insufficient payments. This interest is called instalment interest or arrears interest, depending on the debt. We pay applicable refund interest up to the day an overpayment is refunded, repaid, or applied.

The interest rate is determined every three months in accordance with the prescribed interest rate compounded daily.

The interest rate is based on the average rate of three-month treasury bills sold during the first month of the previous quarter.

Underpayment rates are rounded to the next higher whole percentage point and raised four percentage points. Overpayment rates are rounded to the next higher whole percentage point.

You can request an interest review or a Statement of Interest by using the "Enquiries service" and view a previously issued Statement of Interest Calculated using the "View mail" service at:

Represent a Client, if you are an authorized representative or employee
My Business Account, if you are the business owner

Instalment interest

We calculate instalment interest compounded daily, according to your instalment requirements for the tax year.

We use the offset method to calculate instalment interest. This means we give you credit when you prepay or overpay your instalments, and this can reduce or eliminate the interest we charge on late or insufficient instalment payments.

We do not refund any instalment interest calculated using the offset method. It is used only when calculating instalment interest charges. See an example of how we calculate instalment interest and penalty at Interest and penalties and select "Instalment interest and penalty calculation example".

Note

Credit instalment interest is only calculated on instalment payments from the start of the tax year.

The interest rate on overpayments is lower than on underpayments; however, when we calculate instalment interest using the offset method, the interest rate is the same on prepayments and overpayments as it is on underpayments.

Arrears interest

We charge arrears interest according to the prescribed interest rate. Arrears interest is compounded daily on any unpaid balance from the balance-due day to the date of payment.

We charge arrears interest on the instalment penalty from the balance-due day to the date it is paid.

If you have an amount owing, you can view a revised balance that includes interest calculated to a date you select by using the "View and pay account balance" service and selecting the "Calculate future balance" option using:

Represent a client, if you are an authorized representative or employee
My Business Account, if you are the business owner

Refund interest

We pay refund interest according to the prescribed interest rate. Refund interest is compounded daily on an overpayment up to and including the day the overpayment is refunded, repaid, or applied.

When we refund or apply an overpayment, we pay refund interest from the later of the following dates:

the date of the overpayment
the 120th day after the end of the tax year if the return for the year is filed on time
the 30th day after the date the return was filed if it is filed late

In the case of a repayment of tax in controversy, special provisions apply.

Effect of a carryback on interest

You cannot use a carryback to reduce instalment interest.

We will not adjust instalment interest we previously charged if the amount of the current year credit (for example, dividend refund or capital gains refund) is adjusted because of the carryback.

We will calculate arrears interest, refund interest, or both, for the carryback from 30 days after the later of the following dates:

the first day following the tax year in which the carryback originates
the date the tax return on which the carryback originates is filed
the date a prescribed form, such as Schedule 4, or an amended return is filed
the date a request is made in writing to reassess a tax year to take into account a loss from another tax year

Forgiven interest

If you pay an amount quoted on a notice of assessment or reassessment in full by the date specified, any additional interest from the notice date to the date of payment will not be charged.

Cancel small amounts of penalty and interest

We will cancel any penalty or interest on an amount owed if the total amount of penalty and interest charged is $25 or less when the tax is paid in full. However, if a future adjustment is processed, this cancellation will be reversed and the account reviewed.

Cancel or waive penalties or interest

The Canada Revenue Agency (CRA) administers legislation, commonly called the taxpayer relief provisions, that gives the CRA discretion to cancel or waive penalties and interest when taxpayers cannot meet their tax obligations due to circumstances beyond their control.

The CRA's discretion to grant relief is limited to any period that ended within 10 calendar years before the year in which a relief request is made.

For penalties, the 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. For example, your request made in 2026 must relate to a penalty for a tax year or fiscal period ending in 2016 or later.

For interest on a balance owing for any tax year or fiscal period, the CRA will consider only the amounts that accrued during the 10 calendar years before the year in which you make your request. For example, your request made in 2026 must relate to interest that accrued in 2016 or later.

Taxpayer relief requests can be made online using:

My Account: After signing in, select “Accounts and payments,” then “Request relief of penalties and interest.”
MyBA or Represent a Client: After signing in, on the overview page, select the appropriate program from the left menu and then select the account. Finally, select “Request relief of penalties and interest” from the right menu.

You can also fill out Form RC4288, Taxpayer Relief Request – Cancel or Waive Penalties and Interest and send it in one of the following ways:

online using My Account: select “Submit documents” from the left menu; then select “Submit documents” again at the bottom of the next page; and then follow the instructions
online using MyBA or Represent a Client: for a new case select “Submit documents” from the left menu; then select “No case or reference number?”; and finally, select “Request taxpayer relief - cancel or waive penalties and interest (Form RC4288)”
by mail to the designated office, as shown on the last page of the form RC4288, based on your place of residence

For information on the “Submit documents online” service, go to Submit documents online.

For more details on the required supporting documents, relief from penalties and interest, and other related forms and publications, go to Penalty interest relief.

Pertinent loans or indebtedness (PLOI)

The Income Tax Act contains a number of rules in relation to loans or indebtedness which can apply in the context of cross-border transactions. This guidance deals with pertinent loan or indebtedness (PLOI) elections, which are relevant for the purposes of sections 15 and 212.3 of the Act. The following guidance is not a substitute for the law. The reader should consider this guidance in light of the relevant provisions of the law in force for the particular tax year being considered.

Context

Subsection 15(2) may apply when a corporation resident in Canada (CRIC) or a partnership of which the CRIC is a member makes a loan to, or is otherwise owed an amount by, certain "connected" non-resident persons or partnerships of which such a non-resident person is a member. Where subsection 15(2) applies to an amount owing by a non-resident, the amount is deemed to have been paid as a dividend from a CRIC, subject to certain exceptions, and will be subject to non-resident withholding tax.

Section 212.3 contains rules (known as the foreign affiliate dumping rules) that, among other effects, may deem certain amounts that become owing by a foreign affiliate of a CRIC to be a dividend paid by the CRIC to its non-resident parent and subject to non-resident withholding tax.

Pertinent loan or indebtedness election

The election to treat an amount owing as a PLOI allows taxpayers to avoid deemed dividend treatment and any withholding tax liability that would otherwise result pursuant to subsection 15(2) or 212.3(2), and instead to have the amount owing subject to the PLOI interest imputation rules discussed below.

These elective rules generally apply to amounts that become owing after March 28, 2012.

The effect of a PLOI election

PLOI election filed under subsection 15(2.11) or 212.3(11) in respect of an amount owing to a CRIC

Where an election is made under either subsection 15(2.11) or 212.3(11) in respect of an amount owing, it will be a PLOI and thus become subject to the deemed interest income rule under section 17.1, instead of being subject to potential deemed dividend treatment.

Under the deemed interest income rule, the amount that the CRIC is required to include in its income is computed as follows:

A - B

where:

A is the greater of:

the amount of interest that would be included in computing the income of the CRIC for the year in respect of the PLOI if that interest were computed at the PLOI prescribed rate(s) applicable for the period(s) in the year during which the amount owing was a PLOI, and
where the PLOI can reasonably be considered to have been funded directly or indirectly by another loan or indebtedness owed by the CRIC or certain non-arm's length persons or partnerships, the amount of interest payable on that loan or indebtedness for the year of the CRIC during which the amount owing was a PLOI.

B is the actual amount of interest included in the income of the CRIC for the year in respect of the PLOI.

The applicable PLOI prescribed interest rates are published by the CRA for each quarter.

PLOI election filed under subsection 15(2.11) in respect of an amount owing to a qualifying Canadian partnership (QCP)

Where the PLOI election is filed in respect of an amount owing to a QCP under subsection 15(2.11), the section 17.1 deemed interest computation formula discussed in PLOI election filed under subsection 15(2.11) or 212.3(11) in respect of an amount owing to a CRIC will also apply. However, in that case, the relevant computation period will be the fiscal period of the partnership and the deemed income amount will be included in the income of the QCP. As defined in subsection 15(2.14), a QCP generally means a partnership each member of which is the CRIC or another corporation resident in Canada to which the CRIC is related.

PLOI election filed under subsection 212.3(11) in respect of an amount owed to or by a partnership

Subsection 212.3(25) contains "look-through" rules for partnerships for the purposes of the foreign affiliate dumping rules. These rules will be relevant for the purposes of a PLOI election made under subsection 212.3(11).

In general, subsection 212.3(25) deems amounts owed to or by a partnership to be owed to or by each member of the partnership, based on the proportionate fair market value of the respective member's interest in the partnership. This will therefore result in deemed amounts owing to a CRIC.

These deemed amounts are subject to the foreign affiliate dumping rules and a PLOI election could be made in relation to them. The section 17.1 deemed income computation rules discussed in PLOI election filed under subsection 15(2.11) or 212.3(11) in respect of an amount owing to a CRIC will be relevant where a PLOI election is made.

Relevant period of computation

The deemed interest income under amount A of the formula is computed from the first day that the PLOI amount became outstanding and include each day the amount remains outstanding.

Reporting PLOI interest income

Amounts to be reported

The amount that needs to be reported in respect of the PLOI is the imputed PLOI income inclusion under section 17.1, which is determined as the amount by which the deemed interest amount (amount A) exceeds the amount of actual interest (amount B) as discussed in PLOI election filed under subsection 15(2.11) or 212.3(11) in respect of an amount owing to a CRIC. Report the net imputed PLOI income on Schedule 1, Net Income (Loss) for Income Tax Purposes, on line 210, "Deemed interest on loans to non-residents".

Report the amount of actual interest income (amount B), if applicable, on Schedule 125, Income Statement Information, under item 8091, "Interest from foreign sources" (or item 8090 "Investment Revenue" if using Form T1178, General Index of Financial Information – Short).

Example

Corporation A, a non-resident corporation, controls Corporation B, a CRIC with a December 31 tax year-end. On March 1, 2024, Corporation A borrows $5,000,000 from Corporation B at an interest rate of 3% (which rate is established by the CRA to be an arm's length rate throughout the relevant time, based on the terms and conditions of the loan). By December 31, 2025, Corporation A has not repaid the loan. Corporation A and Corporation B choose to elect under subsection 15(2.11) of the Act for the debt between them to be a PLOI and file the election on June 30, 2026, Corporation B's 2025 filing-due date. There is no resulting deemed dividend and, instead, Corporation B has to include deemed interest income on $5,000,000 for its 2024 (March 1 – December 31) and 2025 (entire year) tax years, and will have to continue to do so for any subsequent year until the PLOI is fully repaid. As the election was not filed at the time of Corporation B's 2024 filing-due date, a late-filing penalty would be applicable. As the loan was interest bearing, the CRIC would report the PLOI "A minus B" deemed interest inclusion discussed above on Schedule 1, on line 210, "Deemed interest on loans to non-residents", and the amount of actual interest income (amount B) on Schedule 125, under item 8091, "Interest from foreign sources" (or item 8090 "Investment Revenue" if using Form T1178, General Index of Financial Information – Short).

Filing requirements

Simplified method for filing a PLOI election

In interpreting the term "amount" in relation to a loan or an indebtedness, and consistent with the CRA's historic view, each increase in a loan or indebtedness balance should be treated as a unique amount of indebtedness. As a result, subject to the application of the administrative policy outlined below, a separate election is required for each increase in the loan or indebtedness that the electing taxpayers wish to be treated as a PLOI.

As of March 25, 2022, the CRA has adopted an administrative policy (simplified method for filing a PLOI election) under which the CRA will consider an election made in respect of the first amount of loan or indebtedness arising under an agreement to also apply to each subsequent amount arising under that agreement, where the intention of the CRIC is that the PLOI election applies to all amounts borrowed or arising under that agreement. For example, a revolving loan will require one single election even if there have been or will be multiple amounts borrowed and repaid under the same loan or indebtedness instrument. In these circumstances, the loan or indebtedness will be considered to arise on the date of the first amount owing under the agreement.

This administrative policy applies to all elections filed on or after April 11, 2022. In order to be eligible for this administrative policy, taxpayers must send to the CRA, along with the PLOI election as described in Making a PLOI election – Forms T1521 and T2311, a copy of the loan or indebtedness agreement in respect of the single PLOI election that is being filed for the multiple amounts owing.

This administrative policy does not modify the manner in which the imputed income in respect of a PLOI election must be computed.

This administrative policy is intended to provide administrative relief where the CRIC intends that all amounts owing under the same legal instrument are being elected as PLOI. Where the intention is to have only certain amounts of loans or indebtedness made under an agreement be treated as a PLOI, the administrative policy does not apply and separate elections will be required for any amount of loan or indebtedness arising under the agreement to qualify as a PLOI. Therefore, where a taxpayer does not want a subsequent borrowing to be a PLOI, a taxpayer may wish to enter into separate agreement for that amount.

As a reminder of your legal obligations to keep appropriate books and records for tax purposes, for each subsequent year after the initial year for which the single PLOI election is filed and for which the legal instrument remains in place, you must keep all information and documentation supporting the PLOI deemed income inclusion, including detailed information on the multiple amounts which were relevant for the PLOI income inclusion for each relevant year, in case the CRA asks to see them.

Simplified method for filing a PLOI election and back-to-back arrangements

Cross-border notional cash pooling arrangements are one example where the back-to-back arrangement rules for purposes of subsection 15(2) may apply. In general terms, the back-to-back arrangement rules in subsections 15(2.16) to (2.192) are intended to ensure that subsection 15(2) is not avoided where debt funding is provided by a particular corporation or partnership to a borrower indirectly through one or more intermediaries (for example, through a cross-border notional cash pooling arrangement). Where it is expected by the taxpayers that the entirety of amounts advanced by the CRIC into the arrangement will be utilized by the non-resident members of the cash pooling group, those amounts are also eligible for the simplified method for filing a PLOI election.

In such situations, the CRA will determine a CRIC’s imputed PLOI income from a back-to-back arrangement as follows:

the loan or indebtedness will be considered to arise on the date of the first amount the CRIC advances into the arrangement;
the balance owed to the CRIC by the intermediary (for example, in a cash-pooling arrangement, the financial institution administering the arrangement) at the end of each day will be considered the amount owing for the purposes of the PLOI imputed income calculation under subsection 17.1(1); and
the CRIC’s income under subsection 17.1(1) for the year will be reduced by any actual interest for the year from the intermediary included in the CRIC’s income in respect of its balance owed.

If the simplified method is chosen for a PLOI filed in respect of a back-to-back arrangement, it will apply for the duration of the period during which the CRIC is a party to the arrangement, even if the CRIC is a borrower under the arrangement for a period of time.

Making a PLOI election – Forms T1521 and T2311

Taxpayers wishing to make a PLOI election should submit a completed form T1521, Election for a Pertinent Loan or Indebtedness (PLOI) under Subsection 15(2.11) or form T2311, Election for a Pertinent Loan or Indebtedness (PLOI) under Subsection 212.3(11), as applicable.

The PLOI imputed income must be calculated based on the outstanding balance on each day.

How to submit your election and document(s) online

We encourage taxpayers to electronically file the form and supporting documents. You can submit related documents online through CRA's secure portals:

Represent a Client, if you are an authorized representative or employee
My Business Account, if you are the business owner

More guidance on how to submit the election online is available on Filing a special election or return.

In addition, more guidance on how to submit online documents related to your election is available on Submit documents online.

To facilitate the processing of the election, each PLOI election should be submitted separately along with the related documentation. Clearly identify the form submitted in the attachment by indicating in the title, T1521 or T2311 PLOI election and the applicable taxation year-end.

Application of credits and repayments

Repayments of a PLOI will be considered to apply first to the oldest loan or debt outstanding ("first-in, first-out" basis) unless the facts clearly indicate otherwise.

PLOI denominated in a foreign currency

Where a PLOI election is made in respect of a loan or indebtedness denominated in a foreign currency, for the purposes of amount A of the formula, the deemed interest is calculated by applying the relevant PLOI prescribed interest rate to the principal amount of the PLOI, and then converting into Canadian dollars (or, if applicable, the taxpayer's elected functional currency) using the relevant spot rate on the day the loan or indebtedness arose.

Filing-due date of the PLOI election

An election must be filed with the CRA for a loan or indebtedness to be a PLOI. The PLOI election is due on or before:

if an amount is owing to the CRIC, the filing-due date of the CRIC for the tax year when the loan or indebtedness arose, or
if an amount is owing to a QCP, the filing-due date of the CRIC for its tax year in which the fiscal period of the QCP, during which the loan or indebtedness arose, ends.

Filing a late-filed election

A late-filed election is valid if filed on or before three years after the filing-due date.

A full payment of the penalty is required for the election to be valid when the election is late-filed. If you have remitted the full penalty amount, provide the details of the payment with the election.

If an adjustment to the income reported by the CRIC results from the CRIC’s PLOI election and the relevant information is included in form T1521 or T2311, the CRIC is not required to file an amended tax return to report this additional interest income under section 17.1. CRA will adjust line 210 of T2SCH1, Net Income (Loss) for Income Tax Purposes for the relevant tax years based on the information provided in Part 3 of the PLOI forms (T1521 or T2311).

For a late-filed PLOI election involving a partnership or tiered partnerships, provide amended partnership return(s) for each partnership affected by the interest income inclusion (T5013 FIN and applicable schedules including amended T5013 Schedule 1, T5013 slips and T5013 summary) for each relevant fiscal period. In addition, each corporate member of the QCP should submit an amended T2 Corporation Income Tax Return, Schedule 1 and any other schedules that are affected as a result of changes to these schedules.

Paying the late-filing penalty

A penalty must be paid in the amount of $100 for each month, or part thereof, that a PLOI election is filed late. A part month includes one single day in that month.

Administrative relief for the penalty

Under the Act, a PLOI penalty is applicable for each amount of loan or indebtedness. As such, a late-filed PLOI election will be considered invalid and not accepted where the penalty payment is insufficient in relation to the number of PLOIs that the election is intended to cover.

For elections that are processed on or after April 11, 2022, provided that all required information on forms T1521 or T2311 is included with the election, the CRA will apply the new administrative policy described in Simplified method for filing a PLOI election and grant administrative relief with respect to the calculation of any late-filing penalty. Where multiple amounts owing are governed by the same legal instrument (such as a revolving credit facility) and included in a late-filed PLOI election, the election will be considered as one incident of late-filing for the purposes of the late-filing penalty calculation. As explained in the Simplified method for filing a PLOI election, this policy is only available where all amounts owing under the same legal instrument are being elected as PLOI. Should the CRIC wish to treat only selected amounts owing under the same legal instrument as PLOI, the late-filing penalty must be computed in respect of each separate amount.

Signatures

Form T1521, Election for a Pertinent Loan or Indebtedness (PLOI) under Subsection 15(2.11)

Ensure the form T1521 is signed by an authorized officer of the CRIC and an authorized officer of the non-resident corporation that controls the CRIC. In the case of an amount owing to a QCP, all the members of the QCP (or one member designated to sign on their behalf) and an authorized officer of the non-resident corporation that controls the CRIC must sign the election. If a member has been designated to sign the election on behalf of the other members, a letter of authorization must be attached to the election. Failure to provide adequate signatures by the relevant parties invalidates the election.

Form T2311, Election for a Pertinent Loan or Indebtedness (PLOI) under Subsection 212.3(11)

Ensure the form T2311 is signed by an authorized officer of the CRIC and an authorized officer of the non-resident parent that controls the CRIC.

For PLOI elections in respect of amounts that became owing after March 18, 2019, where the CRIC is controlled by a group of parents and if one of the parents has been designated to sign the election on behalf of the other persons in the group, a letter of authorization must be attached to the election. Failure to provide adequate signatures by the relevant parties invalidates the election.

Forms and publications

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2026-01-07