If you fail to file you tax return and/or fail to pay your income taxes to the Canada Revenue Agency on time, significant penalties and interest can be added to your tax balance owing. Moreover, the CRA has significant powers under the Income Tax Act (ITA) to collect outstanding tax debt. A brief summary is discussed below (for practical purposes we’ll assume that a 2009 tax return wasn’t filed or paid):
Penalties for Late Filing
- The penalty is 5% of the 2009 balance owing, plus 1% of that balance owing for each full month that the return is late, to a maximum of 12 months
- If CRA charged a late-filing penalty on the return for 2006, 2007, or 2008 the late-filing penalty for 2009 may be 10% of the 2009 balance owing, plus 2% of the 2009 balance owing for each full month that the return is late, to a maximum of 20 months
Interest on Taxes Payable
- If 2009 taxes were not paid on time or if there is a balance owing for 2009 on the Notice of Assessment, CRA charges compound daily interest starting May 1, 2010, on any unpaid amounts owing for 2009.
- In addition, CRA will charge you interest on any penalties, starting the day after the return is due. The rate of interest CRA charges can change every three months – depending on the prescribed interest rate which changes quarterly.
- Under Section 223 of the ITA, the CRA can register a lien over a debtors home (or any other real estate owned by the debtor). Once this lien is registered, it effectively functions as a charge on the property and can only be removed once the tax debt is paid in full.
- Under Section 224(1) of the ITA, the CRA can issue a “Requirement to Pay” to a debtor’s bank or employer (the “Garnishee”), requiring it to remit proceeds to the CRA in order to satisfy the tax debt. If the Garnishee fails to comply, it is personally liable to the CRA for the amount that should have been remitted.
The conclusion to this post should be clear: file your tax returns and pay your income taxes on time! This will save you a lot of money and headache…
This post is for information purposes only and should not be interpreted as tax advice or a legal opinion. Please consult with us to review your own particular circumstances.