There’s many times in our lives when we’re late for something, an appointment, dinner, and such. Your taxes are also something that you can also end up being late filing, however, it’s a bit more serious than missing an appointment.
Many people seem to be filing late because they’re going to owe the government money, and want to put off having to pay, as they don’t have the funds. That is probably the biggest mistake you can make. First, you actually may not end up owing the government based on different tax credits, and you may just be assuming you’re going to owe. Second, if you do end up owing then you will incur penalties and interest on the amount overdue, and not from the date you filed, but from the date the taxes were originally due.
If you have a balance owing for 2014, Canada Revenue Agency (CRA) will charge compound daily interest starting May 1, 2015, on any unpaid amounts owing for 2014. This includes any balance owing if CRA reassesses your return. In addition, CRA will charge you interest on the penalties starting the day after your return is due (generally May 1st). The rate of interest CRA charges can change every three months (as of this writing, it’s 5%). If you have amounts owing from previous years, CRA will continue to charge compound daily interest on those amounts. Payments you make are first applied to amounts owing from previous years.
Interest on unpaid taxes may be waived or cancelled under certain circumstances; such as, financial hardship.
If you owe tax for 2014 and do not file your return for 2014 on time, CRA will charge you a late-filing penalty. The penalty is 5% of your 2014 balance owing, plus 1% of your balance owing for each full month your return is late, to a maximum of 12 months.
If you were charged a late-filing penalty on your return for 2011, 2012, or 2013 your late-filing penalty for 2014 may be 10% of your 2014 balance owing, plus 2% of your 2014 balance owing for each full month your return is late, to a maximum of 20 months.
If you failed to report an amount on your return for 2014, and you also failed to report an amount on your return for 2011, 2012, or 2013, you may have to pay a federal and provincial/territorial repeated failure to report income penalty. The federal and provincial/territorial penalties are each 10% of the amount that you failed to report on your return for 2014.
Note that if your balance owing in 2013 was more than $3,000 ($1,800 in Quebec), you were required to make installment payments. If you did not make those installments and owed more than $3,000 in 2014 then you will be charged a penalty and interest for not making those installments. Installment penalties and interest is calculated much differently than regular amounts owing, and I won’t go into those here. Check out Installment interest and penalty charges on CRA’s website.
A payment arrangement is an agreement that you can enter into with CRA, which allows you to make smaller payments over time until the entire debt is paid. If the CRA determines that you cannot pay your debt in full, we can work with you to develop a repayment plan. To help CRA determine your ability to pay, you may have to make full financial disclosure and give evidence of your income, expenses, assets, and liabilities either by telephone or by completing a financial questionnaire supplied to you by a collections officer.
You can also make payment arrangements through the My Account feature, and setup an automatically weekly, bi-weekly or monthly payment.
In the end, it is much better to file your taxes (and other remittances) on time, and then you can make payment arrangements with CRA. Will CRA always agree to what you are proposing for a payment arrangement? No, however, if you have proved that there is a financial burden with having to pay what they’re asking, they usually will agree. After all, they just want their money.