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WHAT IS THE PENALTY FOR FILING TAXES LATE IN CANADA

By Fraser Simpson

WHAT IS THE PENALTY FOR FILING TAXES LATE IN CANADA

For most Canadians filing taxes on time is a must. But sometimes life throws you a curve ball, or two. That means a tax debt that can eat into your savings account. For most, a tax debt and the resulting CRA penalties and interest are overwhelming and feared. But a plan actioned with experienced help can put you back on the track and tax compliance. We have done it many times for taxpayers and it is with great pride that we see the relief provided hard working, honest Canadian families.

To help those who are fearful of a tax debt prepare for their assessment and payment, here is a breakdown of CRA penalties and interest.

Interest

If, after filing, you owe a tax debt, the Canada Revenue Agency will charge compound daily interest on that amount starting on May 1. Additionally, they will charge interest on the penalties incurred starting the day after your return is due. The rate of interest charged by the CRA changes evry quarter and is varied by the T-Bill rate. Currently the interest rate is 5%. If you have a tax debt owing from previous years, the CRA will continue to charge compound daily interest on that amount, and any payments that you make will be applied to those amounts first.

 

Late-filing penalty

The tax filing deadline for the 2017 tax year is April 30, 2018. This means that anything filed after this date is considered late. If you owe a tax debt, you’ll be penalized for your lateness. How much? If you owe taxes for 2017 and don’t file on time, you can expect a penalty of 5% of your 2017 balance owing, plus 1% of your balance owing for each full month your return is late, to a maximum of 12 months.

Also, if you’re a repeat offender and received a late-filing penalty on your return for 2014, 5, or 2016 you may be looking at a late-filing penalty for 2017 of 10% of your 2017 balance owing, plus 2% of your 2017 balance owing for each full month your return is late, to a maximum of 20 months.

Repeated failure to report income penalty

If you failed to accurately report your income ($500 or more for a tax year) this will be considered a failure to report income and you can also face a penalty. If you failed to report an amount on your return for 2016 and you also failed to report an amount on your return for 2013, 2014, or 2015, you may find a repeated failure to report income penalty tacked on.

As a result of the proposed changes, the federal and provincial or territorial penalties are each equal to the lesser of:

  • 10% of the amount you failed to report on your return for 2016; and
  • 50% of the difference between the understated tax (and/or overstated credits) related to the amount you failed to report and the amount of tax withheld related to the amount you failed to report.

If you are concerned about what will happen once you file, and are considering skipping the tax filing deadline in the hopes of avoiding CRA penalties and interest, remember that owing money to the CRA is not illegal, but failing to file is!

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 david@taxmechanic.ca or give us a call. We offer a free 30 minute consultation to help assess your current situation and develop a strategy.

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Mr. Simpson has been active in income tax consulting, residential and commercial real estate development since 1985. Prior to founding the Tax Mechanic, he held several senior management positions, including Director of Land development for a real estate investment company (John DiPoce Management) and Controller of Communicorp Multi Media Inc., a TSX listed company. Mr. Simpson obtained his Bachelor of Arts degree from York University, Toronto, and qualified as a Chartered Accountant in 1993. He has also completed the Canadian Securities and Partners, Directors and Senior Officers courses.

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