It’s surprising how many Canadian businesses either file their tax returns late or pay their taxes after the due date. Of course it’s not surprising that the CRA doesn’t look kindly on this practice.
To discourage late filing and payments, the CRA assesses substantial penalties and interest for filing late:
Payroll Taxes —
The penalty for remitting payroll taxes late ranges from 3 percent if the amount is one to three days late to 10 percent if it’s more than seven days late or if no amount is remitted. If you’re late more than once in a calendar year, a 20 percent penalty may apply.
To calculate penalties and interest on GST/HST due, the CRA has a formula involving the GST/HST amount owed and how long it’s been overdue. For any return filed late (unless there is no amount due), the penalty is 1 percent of the amount owed plus 25 percent of that 1 percent, multiplied by the number of months the return is overdue (up to a maximum of 12 months).
Interest equal to the basic rate plus 4 percent is charged on an overdue amount. The basic rate is based on the rate charged on 90-day Treasury bills.
Corporate Taxes —
If you file your corporate tax return late, you’ll incur a 5 percent penalty on the unpaid tax, plus 1 percent of the unpaid tax for each complete month that the return is late (up to a maximum of 12 months). Arrears interest is charged on any unpaid balance from the due date and is compounded daily.
Note that if you are a repeat late filer or have failed to report income in a prior year, you can be subject to penalties that are double the basic penalties.
Many late filers are trying to delay tax payments due to cash flow problems. The lesson, though, is to file on time, even if you can’t pay on time.
Let your DJB professional know if you have questions or concerns about your business tax liabilities — we can help.