The Complete Guide to CRA Penalties
CRA Penalties: What Tax Penalties Could I Face?
CRA, or the Canada Revenue Agency, imposes penalties on individuals and businesses who do not adhere to the tax filing and payment rules.
Where possible, you would like to avoid having to pay these.
If, however, you have tax debt problems, it is also helpful to know where you stand.
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CRA Interest Penalties
The Canadian Revenue Agency charges interest on the money you owe it, just like a regular lender or creditor.
Thus, the longer you wait to make the necessary payments, the higher the amount that you owe.
The CRA calculates the rate of interest on an annualized basis and begins charging it immediately after the payment deadline.
The CRA also reserves the right to update penalty interest rates every quarter, so the amount that you owe could change through time, depending on their decisions.
Finally, if you owe taxes from previous years and have not yet paid them, the CRA will continue to apply interest to those too at the prevailing rate.
When you make repayments, the money goes to your oldest outstanding balances first.
Late Filing Penalties
In addition to interest penalties, the CRA also levies late-filing penalties – fines that you have to pay for missing tax deadlines.
If you owe tax for the current tax year, but file after the date the return is due, then the CRA charges you a late-filing penalty.
Currently, this is 5 percent of the previous years’ balance and a further 1 percent of that balance for every month your return is late, up to a maximum of 12 months.
The penalties can rise further, however, if you missed the filing deadline in previous years.
If, for instance, you filed your return late in 2018, then the CRA will raise your late-filing penalty to 10 percent in 2019 and increase the penalty by a further 2 percent for every month you file late, up to a maximum of 20 months.
Repeated Failure To Report Income Penalty
The CRA demands that you report all of your income earned in a given year. If you don’t, then they will impose a “repeated failure to report income penalty.”
The penalty comprises two components:
- Ten percent of the income you failed to report for the preceding tax year
- 50 percent of the difference between the understated tax you failed to report and the amount of tax withheld related to what you failed to report
Gross Negligence Penalties
Finally, the CRA will impose additional penalties if you knowingly withhold information or omission relating to your income on your tax return.
Gross negligence penalties come in two forms.
If the CRA finds evidence of gross negligence, you must either pay a fine of $100 or 50 percent of the understated tax related to the omission – whichever is greater.
Tax problems like these can undermine your financial stability.
Often, you want to pay the tax you owe, but circumstances work against you.
If you are worried about settling tax debt, it can help to speak with tax debt experts to plot a path out of the situation.