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Last updated: September 22 2023
Tax Delinquents: Counsel to Catch Up Late Filings
Excerpted from EverGreen Explanatory Notes
It’s a sign of the times: everything seems to be going up, including the billions Canadians owe to CRA. But now is a good time to catch up and stop the tax bleed. Looking at the most recent stats from February 6, 2023 to September 18, 2023, 23% of returns filed this year had an average balance of $7556: collectively a whopping tax debt of $54.8 Billion. These costs grow with expensive late filing penalties and interest charges. Delinquent taxpayers can avoid incurring more costs by understanding the penalties and in hardship cases, requesting relief from penalties and interest. But they may fear CRA repercussions and some sage counselling from their financial advisors can help to get it done. Start with a quick checklist:
KNOWLEDGE BUREAU CHECKLIST: Common Administrative Penalties Levied By CRA
|
Circumstance |
Penalty |
|
Failure to file a return on time |
5% of unpaid taxes plus 1% per month up to a maximum of 12 months from filing due date, which is June 15 for unincorporated small businesses |
|
Subsequent failure to file on time within a three-year period |
10% of unpaid taxes plus 2% per month to a maximum of 20 months from filing due date |
|
Gross negligence: false statement or omission of information in the return |
50% of tax on understated income with a minimum $100 penalty. This penalty also applies to a false statement re the GSTC. |
|
Late or insufficient instalments |
50% of interest payable exceeding $1,000 or 25% of the interest payable if no instalments were made, whichever is greater. |
Aside from the sampling of common penalties noted above, CRA can also issue penalties for over contributions to programs such as Tax Free Savings Account and RRSP, as well as penalties for not filing forms such as Foreign Income Verification form T1135, and the new Underused Housing Tax form UHT-2900, due October 31, 2023.
Then there is the interest cost, compounding at CRA’s prescribed daily rate, which is currently 9%. A simple example illustrates how quickly daily compounding interest in the current rate environment can add up. By using an online interest calculator, and plugging in an annual 9% interest rate that compounds daily, and assuming a $10,000 tax balance owing, results are as follows:
- balance is paid off in 1 year, the total interest is $943,
- balance paid off at the end of 5 years the total interest is $5,684,
- balance paid off at the end of the 8th year, the total interest is $10,542.
Put another way, if you don’t pay off $10,000 within 8 years, the interest you owe will surpass the original tax balance owing, doubling your balance to $20,542 owing. If you were also assessed penalties, your balance owing would double in less than 8 years.
Make a Difference: The numbers tell the story. Paying off tax debt as quickly as possible will reap exponential benefits. Avoiding tax penalties by filing all tax returns on time is an early new year’s resolution worth pursuing with sound tax planning advice. Astute tax and financial advisors will let their clients know about the Taxpayer Relief Program (using form RC4288). CRA may at any time waive or cancel all or any portion of any penalty or interest otherwise payable under the Income Tax Act. Tune in to KBR next week for details.
