While many tax payers pay their taxes using a cheque or online banking, a new option for paying any amounts owing is now available. As of April 2013, Canadian tax payers can pay their taxes to the CRA via credit card.
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Plastiq, a credit card company based in Boston but with offices in Toronto, now allows people to make tax payments using their credit card. Plastiq uses government accounting software and can accept payments on current year taxes, balances owing from prior years and tax instalments.
Paying your taxes using a credit card now gives you the ability to pay easily, quickly and securely without the hassle of writing a cheque or through their bank.
It also gives you more time to pay your taxes. If you make a payment using your credit card at the end of April, you likely will have a month to pay the amount off your credit card balance (depending on your billing cycle). If you paid using online banking, the amount would come out of your bank account immediately. This isn’t ideal for someone who owes a large amount and needs more time to pay it off.
You’d also have the chance to collect some rewards points by using your credit card. I’m a big fan of cash back, and paying with my cash back card would actually give me 1% cash back on my taxes.
The biggest drawback is the fees. Plastiq charges about 2.5% on the total balance for using their service. If you owe $5,000, this means you’ll pay $125 just for using the service.
If you’re late, you’ll pay even more through penalties assessed by CRA. Then if you are late on your credit card payment, you could pay interest on that as well. A $5,000 tax bill could easily become $5,500 through interest and penalties.
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CRA doesn’t formally endorse Plastiq and if they were to process the payment late, you may be on the hook for late penalties. And let’s not forget the obvious – you would essentially be paying debt with credit, which is something everyone should try to avoid at all costs.
I don’t pay my taxes with a credit card because I try to make enough RRSP contributions throughout the year so that I get a tax refund each spring.
Even if I did owe taxes when I filed my return I would avoid paying through a credit card because the cash back I’d get on my credit card (1%) would be lower than the fees I would have to pay (2.5%).
Conclusion: In my opinion, using credit to pay any debt is a bad idea. Apparently this practice has caught on in other countires but I’m hoping people avoid this option.
If you leave your taxes to the last minute I would recommend planning ahead and making sure you have enough cash to write a cheque at the end of April.
Would you ever pay your taxes with a credit card?
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