Overview of CRA Penalties and Interest for Income Tax and GST/HST
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.
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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 issues 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.
Potential CRA Interest and Penalties
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:
- If you have an unpaid balance, you will be charged compound daily interest. You will also be charged interest on any penalties charged. The rate of interest charged by the CRA can change every three months. Interest rates are published on the CRA’s website.
- Late-filing penalty:
- If you owe tax and do not file your return on time, you will be charged a late-filing penalty. Currently, the penalty is 5% of the balance owing, plus 1% of your balance owing for each full month your return is late, to a maximum of 12 months. This means that you may owe up to 17%.
- If you have repeatedly filed late, the late-filing penalty may increase to 10% of your balance owing, plus 2% of your balance owing for each full month your return is late, to a maximum of 20 months. If you are assessed as a repeated late filer, you may have to pay up to 50% of your balance owing in penalties!
- Repeated failure to report income penalty:
- You are required to report your income to the CRA accurately. If you fail to report an amount on your return (whether intentionally or in error), and you also failed to report an amount in any of the previous three years’ returns, you may have to pay a federal and provincial/territorial repeated 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.
- False statements or omissions penalty:
- You are required to be truthful when providing information to the CRA. This means that, not only must the information you provide be accurate, but you must not leave out any information either.
- If the agency believes you were negligent, or knowingly made a false statement or omission on your income tax return, you may be charged a penalty equal to the greater of:
- $100; and
- 50% of the understated tax and/or the overstated credits related to the false statement or omission.
- 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.
For GST/HST returns, the CRA charges interest on:
- any overdue balance owing on a return;
- late or insufficient instalment payments; and
- any other overdue GST/HST amount that you have to remit to the Receiver General
For GST/HST returns, the CRA has a number of different penalties that may be charged for a variety of circumstances, including:
- Failure to file (for any return with a balance owing, which is filed late)
- Failure to file after receiving a Demand to File
- Failure to file electronically
- Failure to accurately report information
Our team understands CRA processes and we have a successful history of working with individuals and companies to resolve tax issues. If you are struggling with CRA penalties and interest, please contact us today.
Dealing with CRA Interest and Penalties
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 issues.
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.
Farber Tax Solutions can help you successfully deal with CRA collections. We utilize the experience of our ex-CRA professionals to:
- 1| remove existing collections action;
- 2| prevent future collections actions; and
- 3| help implement an affordable payment arrangement that is acceptable to the CRA.
In some cases, collection actions can even be postponed altogether. Our staff have over 30 years of combined experience working at the CRA and utilize their insider knowledge to help secure the best deal for you.