Should you pay the CRA with your credit card?
Are you debating whether or not it’s best to pay your taxes off with a bank card? This yr, greater than 6.5 million Canadians owe taxes, with a median steadiness of $6,990, in accordance with the CRA’s 2023 private earnings tax return statistics.
Paying your taxes off with a bank card may work to your profit. However, there are additionally some appreciable drawbacks to take note of. Below, I’ll talk about a few of the professionals and cons of paying the CRA together with your bank card and description a few of the finest alternate options.
HOW TO PAY THE CRA
Thankfully, the Canada Revenue Agency makes it extremely straightforward for taxpayers to pay their money owed. After all, the CRA desires to receives a commission.
For reference, right here’s a complete checklist of how people will pay taxes to the CRA.
Online
-
Third-party card processors (credit score or debit card, PayPal, or Interac e-Transfer) -
Your on-line banking portal -
Pre-authorized debit (PAD) through your on-line banking portal -
CRA My Payment through Interac (debit card solely) -
Wire switch (if you happen to don’t reside in Canada or don’t have a Canadian checking account)
In-person
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Canada Post (debit or money solely) -
Your financial institution or monetary establishment (debit or cheque solely)
By mail
ADVANTAGES OF PAYING WITH YOUR CREDIT CARD
The best option to pay your taxes on-line is thru the CRA My Payment system, which will be accessed by way of your CRA My Account or by paying by way of your checking account’s on-line portal.
However, the CRA has additionally partnered with PaySimply – a third-party on-line cost processor that accepts funds made by way of PayPal, debit, or bank cards.
As I discussed, there are professionals and cons to paying your taxes with a bank card. Let’s begin with the benefits.
Instant cost
One of the most typical the explanation why taxpayers pay on-line with their bank cards is that the cost is processed immediately. If you’re working brief on time, are having hassle logging into your CRA My Account, or are approaching your cost deadline, paying together with your card on-line ensures your cost is processed rapidly.
You will pay your taxes on time
If you’re one of many many Canadians experiencing monetary hardship, you might not have money obtainable to pay your tax debt. While the CRA presents cost plans (extra on this beneath), these can also end in added curiosity charges.
Paying your taxes off with one lump-sum bank card cost ensures your tax debt is dealt with on time so you’ll be able to keep away from any disagreeable interactions with the CRA.
Earn factors and rewards
Even when you’ve got the funds obtainable to pay your tax debt, you should still profit from paying your taxes with a bank card when you’ve got a card that permits you to earn cashback or extra rewards.
For instance, many playing cards provide new cardholder bonuses that award customers journey rewards factors, free credit score, or extra cashback in the event that they meet sure spending necessities inside an allotted timeframe.
Paying off your taxes will be a good way to satisfy these spending necessities and money in in your reward.
However, you also needs to weigh the web card processing charges towards these rewards to see if it’s price utilizing your card.
DISADVANTAGES OF PAYING WITH YOUR CREDIT CARD
Paying your taxes off together with your card could also be helpful. However, there are additionally some drawbacks you need to be conscious of earlier than you make the choice.
Credit card curiosity
Credit playing cards are infamous for having high-interest charges, which is often far greater than the curiosity imposed by the CRA on late taxes.
If you don’t plan to rapidly pay your bank card steadiness off after utilizing it to your taxes, you could possibly find yourself in much more debt than you began with.
Costly processing charges
PaySimply, the CRAs third-party card processing associate, imposes a 2.5 per cent price on all PayPal and bank card transactions. This means you’ll pay an additional $2.50 for each $100 you owe and $25 for each $1,000 you owe.
By comparability, checking account transfers are sometimes fee-free and funds made through Canada Post have a flat price that ranges between $3.95 and $7.95.
Impact in your credit score rating
If you don’t pay your bank card steadiness off earlier than the tip of the month, it may considerably affect your credit score rating. One of the important thing elements that determines your rating is your credit score utilization.
This measures the proportion of your whole obtainable credit score that you just’ve used and is calculated by credit score bureaus month-to-month. Your credit score rating might be negatively impacted in case your credit score utilization will increase considerably as a result of a big lump sum tax cost.
ALTERNATIVES TO PAYING WITH YOUR CREDIT CARD
Here are a couple of alternate options to contemplate as a substitute of paying your taxes off together with your bank card.
Set up a cost plan
The CRA permits taxpayers to arrange particular person cost plans based mostly on their earnings and bills. Once a cost plan is created, the quantity will likely be withdrawn month-to-month through a pre-authorized debit by way of your financial institution. If you go this route although, remember that there is perhaps curiosity funds that you just’ll must pay. It typically received’t have an effect on your credit score rating if you happen to resolve to arrange a cost plan.
Obtain a private mortgage
Requesting a private mortgage by way of your financial institution could also be higher than utilizing your bank card. Personal loans typically have decrease rates of interest than bank cards and should provide extra beneficial cost phrases.
Making well timed funds both in a lump sum or in separate quantities may additionally enhance your credit score historical past and assist diversify your traces of credit score, which may positively affect your credit score rating.
Reassess your tax returns with an expert
If you filed your taxes your self, then there’s an opportunity that you will have made a couple of errors.
A CPA may allow you to determine tax credit and advantages you didn’t apply for, which may considerably decrease your tax legal responsibility.
Tax debt aid and forgiveness
The CRA might provide tax debt aid and, in uncommon instances, forgiveness based mostly on extenuating circumstances. However, nothing is assured, and every case is reviewed in-depth earlier than a call is made. You should contact the CRA straight to debate aid or forgiveness.
Christopher Liew is a CFA Charterholder and former monetary advisor. He writes private finance ideas for 1000’s of every day Canadian readers on his Wealth Awesome web site.
