Last week, in preparation for the approaching 2017 tax deadline, we discussed the importance of filing your taxes, even if you are nervous about a looming tax debt. This week our blog focuses exclusively on the various Canada Revenue Agency (CRA) penalties associated with a tax debt. If you have questions about CRA penalties, this blog should help you find some answers.
If you missed last week’s post, it focused on filing your taxes even if you anticipate a tax debt, and the ways in which you can deal with it. For more on that, check it out here. https://www.spergel.ca//learning-centre/tax-debt/2017-tax-deadline-approaching-need-know-anticipate-tax-debt/
If you file your taxes and end up owing tax debt for 2016, the CRA will charge compound daily interest the day after the deadline (May 1st). The CRA rate of interest can change every three months – you can check out current interest rates here: http://www.cra-arc.gc.ca/tx/fq/ntrst_rts/menu-eng.html.
Furthermore, if you have a debt owing from previous years, the CRA will continue to charge daily interest on those amounts as well. Any payments you make will be applied to those balances first.
If you owe a tax debt for 2016 but do not file on time, you will be charged a late-filing penalty. The current penalty is 5% of your 2016 balance. In addition to this, you will be charged 1% of your balance for each month you are behind filing, for a maximum of one year.
If you were late in previous years, the late-filing penalty increases to 10% of your 2016 balance. You will also be charged 2% of your 2016 balance for each month you are behind filing, for a maximum of 20 months.
Repeated failure to report income penalty
If you file but fail to report an amount of income of $500 or more on your 2016 return and you also failed to report said amount on your return for 2013, 2014, or 2015, you may find yourself saddled with a repeated failure to report income penalty.
The penalty is as follows:
- 10% of the amount you failed to report on your 2016 return, and
- 50% of the difference between the understated tax related to the amount you failed to report and the amount of tax withheld related to the amount you failed to report.
Gross negligence penalties
If you, knowingly or under circumstances amounting to gross negligence, make a false statement or omission on a tax return, you may also have to pay a gross negligence penalty. The penalty is equal to the greater of $100 and 50% of the understated tax and/or the overstated credits related to the false statement or omission.
A tax problem can have a significant impact on your financial stability. When you owe taxes, enforcement action from CRA will follow, and a wage garnishment or frozen bank account can make meeting your monthly financial obligations difficult, if not impossible. It is crucial to settle a tax debt as soon as possible.
At Spergel, we can help you develop a plan to deal with a tax debt before those CRA penalties are levied.