Many folks seem to be chronic late filers when it comes to their personal tax return—never a good idea when CRA owes you money, as you have continued to give the government an interest free loan. Worse, however is when you owe them; and yes, they will be charging you interest—compounded daily—and more.
Voluntary compliance can really pay off when you file a tax return to clear up your guilty conscience. CRA will not charge penalties if you tell them about your tax indiscretions before they tell you—check out the potential list below if you are a chronic late filer. There are several layers of penalties that can be invoked including interest, compounded daily, at the prescribed rate of interest, plus 4%. OUCH!
To comply voluntarily, see your tax advisor with details regarding all under-reported income, over-reported deductions or credits and file form T1ADJ to correct your errors or omissions. Remember, tax filing after 10 years will be statute barred after the end of this year, so if CRA owes you a refund, you'll lose it if you don't claim it in December.
In fact, this could all turn out well if you hurry—an unexpected refund from an adjustment or late filed return could help with the credit card payments in January!
NON-COMPLIANCE PENALTIES FOR TAXPAYERS
~ Late filing penalties — first time: 5% of unpaid tax plus 1% per month for 12 months; second time within a three year period after demand to file: 10% plus 2% per month for 20 months
~ Failure to file a return — for each such failure, the greater of $100 and the product obtained when $25 is multiplied by the number of days, not exceeding 100 during which the failure to file continues.
~ Gross negligence — false statement or omission of information in the return - 50% of tax on understated income with a minimum $100 penalty. This penalty will also apply to a false statement relating to the GST Credit.
~ Failure to provide information on a required form — $100 for each failure
~ Failure to provide Social Insurance Number — $100 for each failure unless applied for within 15 days of the request to file
~ False statements or omissions with regard to foreign properties — 5% of the fair market value of contributions made to the property, minimum of $24,000
~ Failure to provide information with regard to a foreign-held property — $500 per month for a maximum of 24 months; $1,000 a month, maximum of 24 months if there is a failure to respond to a demand to file plus an additional penalty of 5% in some cases.
~ Effect of carry back of losses — Penalties assessed may not be offset by the carry back.
~ Late or insufficient instalments — 50% of interest payable exceeding $1,000 or 25% of interest payable if no instalments were made, whichever is greater.
~ Misrepresentation by a third party — the greater of $1,000 and the total of gross entitlements from the scheme or in all other cases, $1,000
~ Third party participation in make of false statements — greater of $1,000 and the lesser of the penalty to which the taxpayer is liable above and the total of $100,000 plus the person's gross compensation
~ Failure to deduct or remit source deductions —1 to 3 days: 3% penalty; 4 or 5 days: 5% penalty; 6 or 7 days: 7% penalty; more than 7 days: 10% penalty
~ Second such failure in same year if grossly negligent — 20% of amount not withheld or remitted.
Taxpayers who participate in tax evasion can also be liable to a second level of punishment by being charged with an offense. Here's what you need to know:
~ Anyone who is found to be guilty of an offence as a result of failure to file a tax return can face a fine of not less than $1,000 and not more than $25,000 or both the fine and imprisonment for up to 12 months.
~ Anyone convicted of tax evasion will face a fine of not less than 50% and not more than 200% of the tax that was sought to be evaded or a prison term not exceeding two years, or both. An additional fine of not less than 100% and not more than 200% of the tax sought to be evaded or credits sought to be gained. This additional penalty would be sought by election of the Attorney General and could also be accompanied by a prison term of not more than 5 years.