We're currently in the thick of tax season, and millions of Canadians are scrambling to file their return - and pay any money owed before the April 30th deadline. If you're found to owe on your taxes, there are a number of ways to pay the money, as outlined on the Canadian Revenue Agency's website. Using a credit card to pay for taxes has never been an option for Canadians, however - until this year.
For the first time ever, a third party company is advertising that you can pay your outstanding income tax using a credit card. Plastiq Inc. is based out of Boston, and is also located in Toronto. Its website declares, “For the first time ever, Canadians have the ability to use the convenience, flexibility and security of their credit cards to make tax payment to the CRA.” It adds you can get all the rewards by making your payment through them, alluding to the many cards that give loyalty points for every purchase.
Daniel Choi, Co-founder and Chief Operating Officer at Plastiq says “ The CRA has verified our capacity to process Canadian tax payments and recognizes Plastiq as a means to use a credit card for tax payments.” Choi says the CRA has successfully tested and approved the proper functioning of this funding pipeline. He admits its usage is not officially endorsed by the CRA.
The CRA website has not provided a link to the Plastiq website. It adds it does not endorse Plastiq Inc but is aware they are processing payments for a fee.
If you're thinking of using your credit card to pay the CRA, here is what you need to know.
If you decide to make a payment that you owe to the CRA though the Plastiq website you will be charged a fee of 2% of the amount you are paying. So if you are using your credit card to collect points or any other loyalty bonus this transaction is a wash as the value of the points is usually around 2% of the total transaction.
The CRA has no contractual obligation with Plastiq Inc. Also, the CRA also does not encourage anyone to pay his or her income tax by using a credit card. If for any reason the date of the transaction comes into dispute and CRA receives a late payment the taxpayer is responsible to pay any interest occurred. Plastiq’s Choi says “Funding takes approximately two to three business days from simple payment submission at plastiq.com to CRA acknowledgement.” He recommends taxpayers plan accordingly when paying their bill.
When you go to the Plastiq website to make your payment to the CRA the first details they ask for are a social insurance number and first and last name. This can make some people uncomfortable as it is a third party. While the website is secure, there is no protection if someone was able to see that information. Choi says Plastiq adheres to the highest security standards that are used by all the big banks and is certified to process credit card payments. He adds, “The specific pipeline created for the CRA tax initiative makes use of additional encryption technologies and leverages the trusted infrastructures of Canada's largest banks and processors.”
As a personal finance journalist, I can’t stress enough how counterproductive it is to pay debt with borrowed funds. If you want to get financially ahead you have to pay your bills with cash that you have in the bank. The interest fee charged on credit card debt, some as high as 28%, can easily balloon your costs if you don’t pay before the credit card statement due date.
While this new form of payment is quite limited in Canada, 2.6 million Americans use credit card sites like Plastiq to pay their taxes. While convenient, the CRA recommends taxpayers remit their income tax payments via a number of other mediums that are free of charge and most effective. Their first choice is to pay electronically through a financial institution online banking platform.