The importance of filing your taxes on time cannot be understated, it’s critical to know what happens when you file your taxes late in Canada. Individual income tax filers who file their tax late and have a balance owing to the Canada Revenue Agency (CRA) will have to pay a late filing penalty, (which can be hefty) in addition to interest on the balance owing. There is a late filing penalty of 5 per cent of the balance owing in conjunction with a penalty of 1 per cent for each month the return remains overdue. This is something taxpayers should seriously consider when determining whether or not to file their personal tax return on time.
The penalty is steeper for those who have been charged with a late filing penalty in the previous three years. It is effectively doubled, with the tax filer now having to pay a penalty of 10 per cent of their owed balance, along with 2 per cent of the balance outstanding for each month the tax return is late, up to a maximum of 20 months. Given these hefty fines, you’ll want to do everything you can to make sure you file your taxes on time.
Depending on your employment, you’ll have different deadlines to file your tax returns. If you are filing an individual tax return, the deadline is April 30th unless you or your spouse are self-employed. For those who are self-employed (or have a spouse who is self-employed), the deadline becomes June 15th. However, if you owe a balance, you must pay it by April 30th. Note: the filing date is adjusted to the next business day if either of these dates fall on a weekend or holiday.
Meanwhile, the deadline for business owners is on June 15th. This date applies to those in a sole proprietorship or partnership, whose business income is declared on form T2125. The penalties for business owners who file their taxes late are the same as those for individuals, although they have some additional time to file their returns.
Canadian corporations have the same penalties as well, but their deadlines are slightly different. Companies must file corporate (T2) returns within six months of the fiscal year-end; however, they must pay them within two (2) months of the fiscal year-end if they owe any taxes. They can make their corporate tax payment within three (3) months if they are a Canadian-controlled private corporation or claim the small business deduction. It’s important to note that all businesses in Canada, whether active or otherwise, must file an annual T2 return. If you’d like to avoid this, you must officially dissolve your corporation.
Sometimes, people run into situations out of their control that causes them to file their taxes late. In some (rare) instances, the CRA may waive late-filing penalties and interest. If you’d like to seek taxpayer relief from penalties or interest, you’ll have to submit Form RC4288 Request for Taxpayer Relief - Cancel or Waive Penalties or Interest. But, there is no guarantee that you’ll be granted relief and these submissions must meet very specific circumstances. Often times it is best to seek the guidance of a professional to ensure your submission avoids common pitfalls and has the most likely chance for success.
Paying your taxes on time is essential; even if you need to pay more taxes than you can afford to by the deadline, you must still file your income tax return to avoid steep penalties. Paying a partial amount on the balance you owe may make the CRA more inclined to waive the penalties since it demonstrates a sincere interest in complying with regulations. If you’re not sure about the best course of action, it’s best to consult a professional accountant.
Blueprint Accounting, Inc. is a cloud accounting firm in Ottawa offering small business bookkeeping, accounting, and professional tax services. By leveraging cloud-based apps to your benefit, we can provide audit-ready accounting solutions to you. Contact us today to find out how we can help you!
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