Arrears interest is the interest that accrues when a tax amount remains unpaid after the due date.
Arrears interest is interest that can apply when a tax amount remains unpaid after the required payment date.
This term matters because many taxpayers focus only on the original balance. In practice, an unpaid tax amount can become more expensive over time even when no new penalty is added, simply because interest continues to apply while the balance remains overdue.
In Canadian tax administration, arrears interest is generally about time and an unpaid balance. Once an amount is overdue, the CRA can apply interest to the unpaid amount for as long as the applicable rules allow it to continue.
That makes arrears interest different from the original balance itself:
It is also different from a penalty. A late-filing penalty is tied to a filing failure under specific rules. Arrears interest is about the carrying cost of an overdue balance.
A taxpayer files a return, receives a Notice of Assessment showing tax balance owing, and does not pay the full amount by the payment deadline. Even if no new filing penalty is triggered, the overdue amount can still grow because arrears interest may keep applying until the balance is paid.
Arrears interest is not the same thing as the original tax balance.
It is also not the same thing as a late-filing penalty. A taxpayer can owe arrears interest because a balance stayed unpaid even if the main issue is no longer the filing date itself.
Is arrears interest the same thing as the original tax balance owing? Answer: No. It is an added interest cost that can apply while the overdue balance remains unpaid.
Why is it useful to distinguish arrears interest from a late-filing penalty? Answer: Because they arise from different rules. A penalty is not the same thing as ongoing interest on an overdue amount.
Interest rates, relief rules, and the exact start date for interest depend on the tax program, tax year, and facts, so the current CRA guidance should be checked whenever an amount is overdue.