Simplifying Canada Revenue Agency Penalties and Interest Fees

We all hear the Canada Revenue Agency (CRA)'s annual filing deadlines:

• April 30th for individuals;

• June 15th for self-employed individuals;

• 6 months after financial year-end for corporations.

But what happens if we miss any of these dates? All penalties and interest are based on amounts owing for the filing year. This is not to say there is no downside to late filing for those collecting refunds. Anyone not current with their tax filings can see federal benefits delayed including Canada Emergency Response Benefit (CERB), Canada Emergency Wage Subsidy (CEWS), GST-HST tax credit, Canada Child Benefit (CCB), Old Age Security (OAS) and the Guaranteed Income Supplement.

Individuals

For those owing the CRA, penalties are much greater. An initial five percent penalty is charged on the amount owing if not filed by your tax deadline. A further one percent will be charged per month for the first 12 months after the deadline. As an example, if an individual owed $1,000 and missed the April 30th deadline, they would be charged a $50 penalty on May 1st. A further $10 penalty will be incurred for the first 12 months the payment is late. A year later this individual will owe the CRA $1,170. For the 2020 tax year the CRA has deferred any interest charged on amounts owing until April 30, 2022. In order to be eligible for this you must have earned less than $75,000 in 2020 and collected Covid 19 relief during the year. The late filing fee will still apply.

Self-Employed

For self employed individuals, the filing deadline is June 15th but any amount owing must still be paid by April 30th, 2020. Penalties for self-employed individuals are the same as above if amounts owing are not received by the payment deadline.

Corporations

Initial penalties for small corporations (taxable capital employed in Canada is under $10M) are the same as individuals described above. For recurring late filing small corporations, the CRA may increase these penalties to an initial ten percent penalty on amount owing and two percent interest charged for each complete month late to a maximum of 20 months.

The Covid 19 benefits have caused many tax payers to owe the CRA for the first time causing financial hardships in many cases. The CRA has recognized this and deferred interest penalties for 12 months for the 2020 tax year only. Individualized payment plans can be made by speaking to a CRA representative in many cases.