Late Taxes? Prepare to Pay!

How penalties are calculated for late taxes

If you’re like me and just about everybody else around this time of year, you’re mildly stressed out about the impending tax season. Likely, you’re trying to push the thought aside. I mean, you’ll get to it right? And you’ve got until April 30th – that’s plenty of time. Miss that date by even one day, though, and you’re in trouble – but just how much? Let’s take a look at the consequences of filing late taxes.

According to Revenue Canada, your 2012 taxes are considered late if they aren’t filed by April 30th of this year. In fact, if CRA doesn’t receive them by May 1st, 2013, you could find yourself in hot water. If you have a balance owing for 2012, CRA will charge you a compound daily interest rate on any unpaid amounts owing for that year. In addition to that, they’ll also charge you interest on the penalties starting the day after your return is due. You should note, too, that the interest rate CRA charges is subject to change every three months.

 Not Your First Infraction?

So this isn’t the first time you’ve done this – perhaps you still owe money from last year’s return. If this is the case, you should know that CRA will continue to charge compound daily interest on those amounts – plus, they’ll charge interest for this year’s debts too. Any payments you make will go towards the amount owing from previous years first, then this year’s.

Under certain circumstances, interest and unpaid taxes may be waived or cancelled. Contact CRA for more details.

Why You Need to File On Time

It’s not as if you can avoid tax payments by avoiding filing altogether. In fact, the penalty for not filing is equally severe – plus, you have to pay interest on the amount owing. For this reason, even if you don’t have the money to pay your balance immediately, it’s always best to get the filing part out of the way first, then worry about the payment. If you don’t, you could end up paying a lot more than you bargained for.

According to the CRA, if you owe tax for 2012 and do not file your return on time, you will be charged a late-filing penalty. The penalty, they say, is five per cent of your balance owing for the year, plus one per cent of your balance owing for each full month that your return is late – up to a maximum of 12 months.

If this isn’t your first time filing late, it gets worse. Say you were charged a late-filing penalty for your 2009, 2010, or 2011 return, your late-filing penalty doubles to 10 per cent of the 2012 balance owed, plus two per cent for each full month that your return is late – up to a maximum of 20 months. As you can see, this can add up quickly, especially if you owe a larger amount of money.

If there is any reason that you cannot file or pay your taxes – and they must be pretty extenuating circumstances that are beyond your control – consider completing Form RC4288, Request for Taxpayer Relief. The form must be submitted to your nearest intake centre via mail.

 Are You a Repeat Offender?

Let’s put it this way; the government doesn’t take kindly to repeat offenders and the same is true when it comes to filing your taxes. If you failed to report an amount on your return for 2012 and you also failed to report an amount on your return for 2009, 2010 or 2011, you may have to pay a special penalty specifically for repeat offenders. According to CRA, the federal and provincial/territorial penalties are each 10 per cent of the amount that you failed to report on your 2012 return. However, if you voluntarily tell the government the amount that you failed to report they may just waive the penalties – no guarantees, though.

 False Statements or Omissions

If you knowingly omit or falsely state your income to avoid paying taxes, there’s a penalty for that too. The penalty is equal to the greater of $100 and 50 per cent of the understatement of tax and/or the overstatement of credits related to the false statement or omission.

Tax Lessons to Live By

  • File your taxes on or before the April 30th deadline
  • Pay your taxes on time and in full
  • Don’t make false claims about income or credits
  • If you slip up once, don’t do it again

Finally, if you have questions or concerns, contact someone at CRA. That’s what they’re there for. It’s better than paying for your mistakes – literally.

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