CRA Tax Penalties – Personal and Corporate
I am so late in filing my taxes!
Penalties of late tax filing for individuals and corporations are 5% of your balance owing, plus 1% of your balance owing for each full month that your return is late, to a maximum of 12 months, or the total of 17% in tax penalties.
If CRA charged a late-filing tax penalty for any of the preceding three years, current late-filing penalties will be 10% of your current year balance owing, plus 2% of your current year balance owing for each full month that your return is late, to a maximum of 20 months or the total amount penalties of 50%.
Repeated failure to report income penalty
If you fail to report an amount on your personal or business return in any year and you also failed to report an amount on your return for any of the preceding three years, you may have to pay a federal and provincial/territorial repeated failure to report income penalty.
The federal and provincial/territorial tax penalties are each 10% (or combined 20%) of the amount that you failed to report for repeat failure of reporting income.
False statements or omissions penalty
If CRA believes that you, knowingly or under circumstances amounting to gross negligence, have made a false statement or omission there could be a penalty.
The tax penalties are 50% of the understatement of tax and/or the overstatement of credits related to the false statement or omission.
Late Filing Tax Penalties: Consequences of Not Filing Past-Due Returns
If you fail to file a tax return, the CRA has the ability to paralyze you financially by charging tax penalties and interests. CRA often use aggressive legal actions to collect the tax debts. Those legal actions Include ,income garnishment, freezing bank accounts etc.
You need an experienced tax representative on your side.
At the Tax Mechanic, our professionals deal with the CRA every day, and can present your case to the CRA on its own merits, with full knowledge of all the rules and regulations.
Case Study: Not filing, and the excuse is….”I know I don’t owe anything and just can’t be bothered right now”
Mary came to us and had not filed in 6 years. She decided to take out a line of credit at her bank and found out that they required her CRA Notice of Assessments for the last two years. She was panicking at this point because she needed a new car, and she had just found the one she wanted. Mary figured she could get the loan and buy the car and pay off the majority of the loan with the funds she was going to get back from CRA. Her plan failed because she failed to release how important filing your taxes really is.
Mary was surprised she had only heard from the government twice over that 6 year time period, but figured it was probably because they owed her money. We filed her returns and sure enough she received back from the CRA $10,500. She got a car (not the one she really wanted)….end of story. Well, not really.
On average Mary got back $1,750 per year, and let’s say she invested those funds each year in a TFSA account that was yielding her a return of 5% per year she would have had at the end of those 6 years $14,844. Yeah, I know she may have spent some of that money but it should make you wonder. Why would you give your hard earned money to the government to hold on to? We have heard all the excuses like, “I would have spent it anyway” or “It is forced savings”. We do have other clients that after filling and get a refund back, invest their funds. A wise decision.
As mentioned, Mary was buying a car. The car was $15,000 and she took the funds from the returns to put a nice down payment on the vehicle and took out a loan for the rest. Hummm I wonder if she could have paid the car off entirely in another way? I know this obviously is not always possible but as Author and Motivational Speaker, Stephen Covey once said in his book “7 Habits of Highly Effective People”…..”Begin with the end in Mind.” We can continue to go through the math on this because that’s what we like to do, but will stop there.
We have had many clients who have owed money and not filed and if you are one of those individuals, we can help. The Voluntary Disclosure Program could be an option that you could take advantage of. There are other options too and our 30 minute free consultation can help you to find a solution that will work.
Whether it is a tax return audit, a tax lien, income garnishment, bank accounts frozen, CRA personal or corporate penalties and interest, payroll tax issues, late in filing….whatever it is contact us, email David Harris at firstname.lastname@example.org or give us a call. We offer a free 30 minute consultation to help assess your current situation