Help & Contact: 1 866 953 4769
Last updated: May 03 2016
Late Filing T1 Returns? File Asap to Save Money
The tax filing deadline of midnight May 2 has come and gone. Now what? It’s important to file as soon as possible if you owe money to CRA. That’s true even if you’re a proprietor and qualify to file by midnight June 15.
Balances Owing. CRA imposes interest costs on income tax balances that are not paid in full by the tax filing deadline. Interest charges kick in right away, starting on May 3, at prescribed interest rates. While on the surface the current rate of 5% doesn’t seem to be an unrealistic rate of interest, as every accountant knows, it’s all in the interpretation and calculation. CRA’s calculation on unpaid tax balances is compounded on a daily basis meaning interest on interest. If you look at simple interest over one year on a $10,000 balance at 5%, interest costs would be $500; however, compounding daily interest causes costs to rise to $512.67.
Penalties. Legislation also enables CRA to apply a wide choice of additional penalties, hitting the taxpayer immediately when an event subject to penalty occurs. For example, late filing penalties result in a 5% penalty plus an additional 1% for each full month the amount remains outstanding up to 12 months. Furthermore, if you were also charged a late-filing penalty in any one of the prior three years, the penalty doubles to 10% plus 2% for each full month the amount remains outstanding up to 20 months. CRA often also tacks on a 50% gross negligence charge in these cases of repeated late-filing offenses.
So let’s say your client is filing their 2015 personal tax return on October 31, 2016—six months late. This client was also a year late filing the 2013 tax return, making them non-compliant two out of four years.
 |
| Balance owing from T1 return | $10,000.00 |
| Late Filing Penalty at 5% | $500.00 |
| Repeat Late Filer Penalty at 5% | $500.00 |
| Gross Negligence Penalty | $5,000.00 |
| Balance as of May 3 | $16,000.00 |
| Monthly Late Filing at 2%/ month (5 complete months) | $1,000.00 |
| Interest Costs for 6 months at 5% compounded | $ 401.64 |
| Total cost of “Borrowing” from CRA for 6 months | $7,401.64 |
Based on the calculations, this equates to an annualized rate of 148%—a long way from the 5% prescribed rate.
For tax evasion, which is a crime, the penalties are even worse:
| Offence | Punishment |
|---|---|
| Failure to make or file a return as required. | A fine of not less than $1,000 and not more than $25,000, or both fine and imprisonment for a term not exceeding 12 months. |
| Tax evasion, including making of false, deceptive statements in a return, certificate, statement or answer; destroying, altering, mutilating books or records; or otherwise willfully evading tax or fraudulently claiming refunds or credits. | A fine of not less than 50% and not more than 200% of the amount of tax sought to be evaded, or both the fine and imprisonment of not more than two years. |
| Prosecution on indictment: any person charged with tax evasion may be prosecuted at the election of the Attorney General of Canada to a further penalty—in addition to any other penalty. | A fine of not less than 100% and not more than 200% of the amount of tax sought to be evaded or credits sought to be obtained. |
| Communication of confidential information by government official. | A fine of not more than $5,000 or imprisonment of up to 12 months or both. |
| Communication of taxpayer’s SIN. | A fine of not more than $5,000 or imprisonment of up to 12 months or both. |
 |
 |
 |
 |
| Refer a Friend | Research | Calculators | Course Trials |
 |
|
|
|
