The Tax Deadline is Approaching – What you need to know about CRA Penalties & Interest

All the information about CRA penalties and interest on income taxes in Canada.

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Everything You Need to Know About CRA Penalties and Interest with the Tax Filing Deadline Approaching

 

We’re quickly approaching the income tax filing deadline, so many Canadians are already thinking of what they’ll owe the Canada Revenue Agency (CRA) and how they are going to pay their tax debt. Thinking about tax debt and the CRA penalties and interest charges can be stressful, but stressing doesn’t stop the debt from adding up.

Instead, it’s important to know as much as possible about how the CRA charges interest and penalties. This will help you prepare for their assessment as well as your tax debt payment.

Here is what you need to know about CRA penalties and interest.

 

CRA Interest Charges

 

If you owe tax debt after filing your taxes, the CRA begins charging compound daily interest starting on May 1st. If you have incurred any penalties after your return is due (such as a late filing penalty – see below) the agency will also charge interest on these penalties, starting on the day after your tax return is due.

The CRA continues to charge compound daily interest on tax debt from previous years as well. If you make a payment, it will be applied to the oldest tax debt first.

The interest rate charged by the CRA can change quarterly. You can find out the current rate by visiting the Prescribed Interest Rates page on the Government of Canada website.

 

The CRA Late Filing Penalty

 

For most Canadians, the deadline to file income tax and benefit returns for 2017 is April 30, 2018. If you file late and owe tax debt, you will be charged a penalty for the late return.

The penalty for filing a late return if you owe money is 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.

If you were charged a late-filing penalty on your return for 2014, 2015, or 2016, you may be charged a higher late filing penalty for 2017. The CRA can charge a penalty 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, for those who are considered repeat offenders.

If you don’t owe taxes or you’re getting a refund, you won’t incur any penalties for filing late, but a late filing can delay or stop benefits, such as the Canada Child Benefit, so it’s still a good idea to file your taxes on time.

Repeated Failure to Report Income

 

If you did not accurately report your income for 2017 and also failed to do so in any of the previous three years (2014, 2015, or 2016), you may also be charged a penalty for failure to report income.

Not reporting an income of $500 or more for a tax year is considered a failure to report income.

The federal and provincial/territorial penalties for repeatedly not reporting an income are:

  • 10% of the amount you did not report on your 2017 return; OR
  • 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.

You will be charged whichever of the two amounts listed above is the lesser amount.

How to Handle Tax Debt

 

Sometimes, those who are concerned about penalties and paying their tax debt consider skipping the tax filing deadline to avoid the situation. The reality is that all this does is make the situation worse. If you do not file your taxes, the CRA will know and will eventually come after you. Interest and penalties continue to add up, even if you don’t file.

Plus, it’s important to remember that while owing tax debt to the CRA is not a crime, failing to file your income taxes is! That’s why you’ll want to contact our expert tax professionals as soon as possible to resolve your situation.

Farber Tax Solutions Helps You at Every Step of the Way including:

  • 1| Organizing: We analyze all documents and communication, to fight the CRA on your behalf
  • 2| Audits: We assist you with audits and ensure proper conduct by tax authorities
  • 3| Appeals: We can prepare a Notice of Objection, clarifying your standing with the CRA
  • 4| Litigation: We represent you at all levels of court

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