Tax Deductibility: Interest on Unpaid Property Taxes Eligible, Penalties Not Eligible

Learn about the tax implications of overdue property taxes in Canada: While interest on unpaid property taxes is eligible for tax deduction, penalties are not. Stay informed to make the most of your deductions.

Tax Deductibility: Interest on Unpaid Property Taxes Eligible, Penalties Not Eligible

In relation to interest on municipal taxes, the Canada Revenue Agency (CRA) has indicated that the interest levied on an outstanding balance of property taxes can be claimed as a deduction, provided that the property taxes themselves are eligible for deduction.

Regarding a late payment penalty of 0.5% per month on unpaid taxes imposed by a municipality, the CRA has clarified that the deduction of any penalty imposed under the laws of a country or political subdivision is not eligable.

Therefore, a penalty cannot be deducted when calculating business income.

The CRA did not address the question of whether the term "penalty" might be interpreted as something other than a penalty, such as interest.

Neal Armstrong. Summaries of 26 June 2020 External T.I. 2017-0688121E5 F under s. 18(1)(a) – income-producing purpose, and s. 67.6.


The deduction is permissible for interest accrued on overdue property taxes, but penalties are not eligible for tax deduction.

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“Please note that the information provided in this article is of a general nature and may not be accurate for your specific situation. The information is current as of the date of posting and is not intended to provide legal advice. It's always recommended that you consult with a professional accountant and lawyer for personalized guidance and advice."