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What Can You Do About CRA Penalties and Interest?

June 18, 2018

CRA penalties and interest can accumulate quickly on a CRA debt. CRA Interest compound daily and can change every three months. Penalties such as the late-filing penalty can end up adding up to and above 17%. There are options for tax relief however. Contact Farber Tax to find out how.

Overview of CRA Penalties and Interest for Income Tax and GST/HST

If you do not file and pay your taxes when they were due, you will be charged interest and penalties by the Canada Revenue Agency (CRA). The CRA has many requirements which all taxpayers (both individuals and companies) must abide by. One of the most important requirements is that there are deadlines and due dates for filing income tax and GST/HST returns. There are also due dates for making payments to the CRA, both for balances owing and for tax instalments. In addition, there is the requirement that all returns contain accurate and complete information. Failure to comply with any of these requirements will almost certainly result in penalties and interest assessed, often inflating a tax balance owing a great deal.

Once you have been charged CRA penalties or interest charges, you may find it difficult to pay the large amount owing. If you cannot pay, you will continue to be charged interest, which makes it more difficult to pay, and so on. The situation becomes increasingly difficult to resolve the longer it continues. For this reason, it’s important to resolve tax disputes as quickly as possible. However, it’s also important to be accurate in your returns and in your interactions with the CRA. Filing inaccurate or incorrect information on your taxes can lead to significant issues.

Possible CRA Interest and Penalties for Income Tax Returns

There are a number of situations where an individual or a company can be charged penalties and interest by the CRA. Rather than turn to a CRA interest calculator, it is much more beneficial to learn why you may be charged additional interest or penalties. Then you will be able to avoid these situations in the future, or resolve them quickly if they have already occurred. For income tax returns, possible CRA charges include:

  • Interest on an unpaid balance
    • If you owe tax debt, you will be charged compound daily interest on the amount owed, including interest on any penalties that have been charged. Interest rates are published on the CRA website and the CRA can change the rate of interest every three months.
  • Late filing penalty
    • You must file your tax return on time. If you owe money and do not file your return on time, you will be charged a late-filing penalty. This penalty is currently 5% of the outstanding balance owing, plus 1% for each full month that your return is late, up to a maximum of 12 months.
    • If you have filed late repeatedly, this penalty may crease to 10% of your balance owing, plus 2% for each full month, to a maximum of 20 months.
  • Repeated failure to report income penalty
    • If you do not accurately report an income on your tax return (either on purpose or in error) and you also failed to report an income in any of the three previous years, you may be charged a failure to report income penalty.
    • The federal and provincial/territorial penalties are each 10% of the amount that you failed to report on your current return.
  • Omissions or false statements penalties
    • If the CRA believes that you knowingly made a false statement or omission on your tax return, or if the agency believes that you were negligent when completing your return, you can be charged a penalty. This penalty will be equal to the greater of:
      • $100, or
      • 50% of the understated and/or overstated credits related to the omission or false statement
      • Different rates may apply depending on what was misreported. For example, separate provisions of the Income Tax Act apply if the agency believes you misreported income from a foreign source.

Possible CRA Interest and Penalties On GST/HST Returns

The CRA can charge interest on GST/HST returns in situations where:

  • There is an overdue balance owing on a return;
  • You have made late or insufficient installment payments;
  • There is an overdue amount on the GST/HST that you have to remit to the Receiver General

The CRA also has several penalties that it can charge in relation to GST/HST returns, such as:

  • Failure to file any return with a balance owing, or filing such a return late
  • Failure to file after receiving a Demand to File
  • Failure to file electronically
  • Failure to accurately report information

Having CRA Interest and Penalties Reduced

It can be very tough to afford a large tax bill, especially when there are significant CRA penalties and interest charges added on to it. It is understandable that this situation is very stressful. However, some people find themselves searching for a CRA interest calculator and actively trying to figure out how to avoid the CRA so they do not have to pay their debts. This strategy does not work. The CRA is incredibly powerful and, if you owe tax debt to it, the agency will find you. It is much wiser to work to resolve your tax disputes.

The team at Farber Tax Solutions has a proven track record of resolving tax problems. Our team is made up of ex-CRA, legal, and accounting professionals who understand CRA processes and how to successfully navigate them. It’s important to know that the CRA will never accept less than the tax debt that is owed to it. However, in some situations, the CRA will reduce or waive interest charges or penalties. The CRA may also agree to a payment plan if you are not able to pay your tax debt in full. However, before negotiating with the CRA, it’s critical to understand how powerful the agency is. The CRA has very strong collection powers and it uses the threat of these powers to influence negotiations.

Working with the team at Farber Tax Solutions levels the playing field. We understand CRA interest and penalties and what it takes to get them reduced or eliminated. We also have a long history of successfully negotiating with the CRA. Contact us today to find out how we can help you.