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What Everyone Wants to Know about Late Taxes in Canada (2019)
July 1, 2019 at 2:30 AM
by Leonard Tam
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First, we all know that we must be responsible for filing our returns on time to the Canada Revenue Agency, for we all must be accountable both as persons and as business owners. It’s in our own best interest to avoid penalties, for no one needs the added stress and expense of filing late.

The consequences are straight forward and consistent. Penalties will be applied for lateness to the balance owing as follows: 5% of balance, plus 1% if your balance owing for each month the return is late for a maximum of 12 months. The CRA is clear.

Making conscientious returns is in your best interest, for the penalties increase for repeated lateness

If filing has been late in any of the three previous years, increased penalties apply as follows: the CRA will charge 10% of balance owing, and 2% of your balance owing for each month the return in late up to a maximum of 20 months. Chronic lateness can cost you. The solution? File on time.

Furthermore, deadlines are fixed. The CRA will be vigilant with the dates of returns. So, April 30 is fixed every year for individual, personal returns. Both the filing must be received, and the balance owing must be paid by that date. For self-employed business owners, the date is June 15. Funds owing must be paid by those dates. Your local banks will assist you in transferring the necessary funds to the CRA. Other than that, if you choose to send a cheque, the letter must be postmarked on or before the date required.

As a tip for business owners, business income is declared on form T2125 part of the T1 Personal Income Tax Return. Penalties are the same as above with the date June 15 for businesses.

For those making corporate returns, the deadlines and penalties for late filing are the same as the penalties for personal income taxes as mentioned above. 

Deadlines for filing corporate T2 returns are within six months of the fiscal year end, but any taxes owed must be paid within two months of fiscal year end or three months if the corporation is a Canadian controlled private corporation, and the corporation is claiming the small business deduction.

All corporations must file an annual T2 whether or not the business if active. The CRA is consistent and attentive on this. The only way to avoid accountability for filing every year is to dissolve the corporation—particularly for non-resident corporations.

Having difficulties? There are occasions of extenuating circumstances when it may be a challenge to pay all that is owed in one lump sum, whether on personal or business accounts. All taxpayers in difficult situations are free to consult with the CRA for consideration of the waiving of penalties. Your circumstances might be a valid reason to apply for an extension and consideration, but you don’t know until you ask. 

The steps are clear for your understanding. Peruse CRA circular 1C07-1: Taxpayer Relief Provisions, and then fill in Form RC4288 Request for Taxpayer Relief—Cancel or Waive Penalties or Interest. 

Does your situation include one of the following: serious illness, emotional distress for personal reasons, an unexpected material disaster in physical circumstances like fire or Act of God, or an infrastructure disruption like postal strike that has prevented you from paying off your balance? Any one of these can qualify for a postponement.

Should there be a reason for the CRA’s not being able to fulfill its obligations, penalties may be waived if delays are the fault of the agency. With the conditions established, the responsibility may be placed back with the CRA. These may include processing errors by the CRA, incomplete or incorrect information on the return resulting in requests for more information by the CRA, delays in assessing amounts owing, and/or delays for legal and official reasons such as audits, objections or appeals.

CRA will take other unexpected eventualities into consideration if the conditions are demonstrable and accompanied by the appropriate statements such assets summary, income, expenses and liabilities.

The CRA encourages dealing with the issues in a timely matter, not leaving the problems too long so that needs can be addressed. So, please, use the appropriate forms: Form RC376 Taxpayer Relief Request—Statement of Income and Expenses and Assets and Liabilities for Individuals for this purpose. Submit this with Form RC4288 on line using My Account or My Business Account, or by mail to a tax service office.

What if I can’t pay the taxes that I owe?

Whatever your difficulties, it is your duty to file on time even if you don’t have the money by the due date. To negotiate in good faith, a partial payment may encourage the waiving of penalties. Do what you can to show good intent.

However, for some, in the event of the taxes-owed not being able to be paid, a bankruptcy official should be consulted for a Consumer Proposal a declaration of bankruptcy.

However, we do wish you a successful business year and a problem free process in filing.