Be Aware of CRA Penalties & Interest

The proliferation of penalties that can and are now likely to be assessed by Canada Revenue Agency (CRA) without notice or discussion are severe and punishing. Below is just a small sample of common compliance issues and the resulting penalties as per the Canada Income Tax Act (ITA).

10 Common Reasons  & Likely Resulting Penalties
  1. Failure to provide information on a prescribed form, including SIN: $100 per failure
  2. Failure to file GST/HST return: Greater of $250 and 5% of the GST/HST outstanding
  3. Overstatement of non-refundable tax credits like the Child Tax Credit, Refundable Medical expenses and Investment Tax Credit: Liable to a penalty of the greater of $100 and 50% of tax payable
  4. Filing of initial late-filed income tax return: 5% on unpaid balance plus 1% each month late to a max.  of 12 months; can be imposed in addition to possible gross negligence penalties (below)
  5. Repeated failure to file (multiple years): 10% of the unpaid tax plus 2% for each complete month to a max. of 20 months; 50% per year, plus interest.
  6. ‘Gross Negligence Penalties’ (Apply when involved in making “a false statement or omission” “knowingly or under circumstances amounting to gross negligence”): Liable to a penalty of the greater of $100 and 50% of tax payable; can be imposed in addition to  late filing penalties
  7. Willful attempt to evade taxes: 50%-200% of taxes payable plus pay all taxes due
  8. Failure to file a tax return or to comply with a duty or obligation imposed by the ITA or the Regulations: $25 for each day of failure; min. $100; max. $2,500, $1,000 to $25,000 fine up to 12 months in jail!
  9. Repeated failure to report money required to be included in income: 20% of the income not reported comprising of 10% on the federal income tax and 10% of the provincial tax; where fraud suspected referral to the Enforcement Division
  10. Net worth assessment on unidentified deposits:Liable to a penalty of the greater of $100 and 50% of tax payable; can be imposed in addition to late filing penalties

Penalties are imposed not only for current alleged noncompliance but also to allow CRA to reach beyond the normal three-year reassessment of the prior year’s filed tax returns. There are specific and extremely narrow remedies that are available to dispute these arbitrary assessments.

Whatever your reasons are for late filing or omitted income you absolutely need to know:

  • What the tax liability actually is.
  • What the GST/HST issues are.
  • The likely application of penalties and interest.
  • Where the money is coming from to pay the tax debt.

With this information you can make better decisions as to what actions you will take to actually comply with filing tax returns. Your first move is to have someone experienced in late filing issues prepare draft returns for your review.

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Read about our Late Tax Filing Tax Service and/or Debt Relief Consulting

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7 Frequently Missed Opportunities for Claiming Expenses for Your Business

The exercise of claiming expenses is surprisingly subjective.  Here are some common occurrences that are frequently missed when claiming business expenses:

  1. Joint Ownership

Joint ownership (project, real estate) and partnerships can change the % of allocation of losses/gains among co-owners for any period at any time.  So, if the partners agree (more common in close relationships) and the partnership agreement allows (change the agreement if it does not), split the net income/losses as would benefit each partners’ tax position in line with their contribution of money and effort to the business or property.  This also affects each partner’s entitlements to profits/losses but in many instances the tax benefits make the argument a no-brainer.

  1. Employee Taxable Benefits

For corporations, watch for expenses paid by the company that create employee taxable benefits (especially to shareholders).  It is an exercise in itself to minimize tax on employee benefits.  Typical and costly taxable benefit items are standby charges and GST on standby charges for corporate owned vehicles, deemed interest and tax on ineligible loans, stock options, personal portion of reimbursement of expenses like travel or tuition fees, and club dues if 50% of activities are not business related.  There are many more benefits to review for tax consequences.

  1. Personal Expenses Incurred for Business

Deduct business expenses paid personally from net income of partnerships or co-mingled activities that don’t reimburse your additional business expenses.  Professional fees, dues, home office, travel, insurance, vehicle, promotion expenses come to mind.

  1. Corporate Vehicle

Instead of having a corporate vehicle resulting in CCA restrictions and standby charges, own the vehicle personally and have the company pay you a tax free (if allowance is reasonable) car allowance for business use.

  1. Computer Software

Deduct computer system software 100% (split the cost of hardware to capitalize and software to expense).

  1. Little Gems That Add Up

Some expenses don’t need to be prorated to comply with CRA regulations (e.g. parking for business use, minor expenses like coffee and donuts that are not meals etc…).

  1. Charges and Reimbursements

Review those charges to shareholder accounts or personal reimbursements to the company for expenses not allowed by company policy.  Some may be deductible.

Don’t think the expenses on CRA forms T2125 and T2032 are the only expenses allowed.

Talk with your tax professional

Many accountants can be rather hesitant to include on the tax return what they may consider to be inexact or obscure expenses. Professional liability, risk tolerance and civil penalties are serious concerns for your accountant. Be sure to clarify expenses with your accountant and they will be less reluctant to not include them.

There is no definition of a deductible expense; it depends on intention and circumstance. However, some types of expenditures are denied as tax deduction outright.

Discuss the risk of claiming expenses that may be disputed by CRA. Sometimes an argument with CRA is worth having. Just do not misrepresent the facts or claim obviously personal items.

Travel, vehicle, entertainment, home office, repairs vs. capital items – the grey areas of tax deductibility make the list very long.

TaxWatch Canada provides comprehensive tax reporting and tax planning services to :

  • Individuals
  • Sole-proprietors/Self – Employed
  • Partnerships
  • Small Business Corporations
  • Trusts
Contact us for more information

How do I get my prior years T4 and/or other tax slips?

A common concern we receive from individuals who are late filing personal income taxes is how to get lost or misplaced tax slips from previous years (for example T4s, T5s, T3s, etc.).

It can seem overwhelming to try to look for all the tax slips however it is actually very simple to receive them. Every time your employer or payer issues you a tax slip, a copy is sent to Canada Revenue Agency (CRA) which means you can simply request copies for past years from CRA by using the online My Account for individuals service or speaking to a CRA agents at 1-800-959-8281. Before calling, have your Social Insurance Number handy and be prepared to answer a few security questions. If you haven’t filed for a while and are concerned about ‘revealing’ yourself to CRA, just give us a call first to talk about this valid concern (1-877-800-9343).

If you require a current year’s tax slip you must obtain it from your employer/issuer.

If you are missing slips for EI, CPP, and/or OAS you can obtain past and current tax slips electronically by visiting Service Canada.

Penalty alert:

If you miss placing a t-slip (income) on your return (even if CRA has it) you could be penalized 20% of the amount of income (unreported) that was on the missing slip.

Keep in mind that there may be other documents pertinent to your tax return that CRA may not receive copies of and/or is not able to provide you with like slips for tuition deductions (T2202As), T5008s for capital gains and losses and RRSP contributions. These documents may have to be obtained from the original issuer.

If you are missing medical expense receipts CRA will not have these on file. Expense reports can often be obtained from your pharmacy – just ask for the yearly tax print out for the years in question. Keep in mind that unless the expenses are fairly significant in comparison to your income, the effort of obtaining these receipts may not be worth it. Talk to us or a tax professional before proceeding.

Certain other income and/or expenses can be estimated if necessary, please speak with us or another tax professional before proceeding.


Read more in our previous post: How to File Back Taxes in Canada

Find out about our late tax filing service here

Or contact us for a free evaluation

What are the Potential Consequences of Unfiled Tax Returns?

There are many probable consequences related to unfiled tax returns. CRA will assume you are evading payment of taxes. Financial affairs and personal situations can be surprisingly sensitive to the lack of current tax filing history.

Here are some issues that you or your company may experience as a result of not having filed your tax returns:

Obtaining Credit. Financial institutions and many organizations that provide financial assistance almost always insist on the notice of assessment of corporate or personal tax returns to validate income for the purposes of debt repayment ability or qualification for program payments. If this independent proof of income is unavailable, you may not receive the financing you require at reasonable rates and terms. Spinoffs of this debacle include negative impact on credit ratings, delays for receiving benefits, grief to executors and estate beneficiaries, landlord problems and not surprisingly, really mad spouses.

Noncompliance Affects Other Areas. CPP benefits, old age security payments, spouse transfers and tax elections, student loans, GST/HST and child tax benefits will be reduced or not available. Personal tax returns of either spouses or common law partners have to be filed as family income is an important determinant of many calculations and entitlements.

You are Presumed Guilty. CRA assumes guilt until taxpayers prove themselves innocent. That is the law. Significant costs usually result if CRA takes action – warranted or not. Tax payers need to stay ahead of CRA and take advantage of the self assessing tax system – complete with valid tax planning opportunities.

CRA Will Proceed Against You. Once CRA discovers unfiled tax returns and is not satisfied with communication outcomes they often have to get attention by issuing notional (estimated) assessments (tax bills). These assessments are valid tax debts until you file the correct tax returns. These estimated assessments are usually 2 to 3 times what CRA suspects your income to be and will include penalties and interest. The collections department will act on these notional assessments.

Noncompliance Affects Others. Unfiled tax returns will affect spouses or common-law partners, business partners and customers. CRA likes group audits and may assume that there are likely others in family or business groups who are noncompliant. More importantly, if asset ownership or bank accounts are co-mingled or taxpayers have provided funds (not loans) to non arm’s length related parties; CRA is quite active in pursuing third parties for one’s tax debt.

Severe, Debilitating Costs. The cost of tax owing increases relentlessly with the application of negligence penalties, late filing penalties, interest on unpaid installments, interest on unpaid taxes, and interest on penalties. Assuming penalties and interest are applied in the usual CRA practice, you can expect your tax debt applicable to each year in arrears to double every eight years. Late filing penalties and gross negligence penalties are ‘hard’ penalties and quite difficult to dispute if the facts are not in the taxpayer’s favour.

Transferring Assets. It bears repeating – transferring assets to non arm’s-length parties (spouses, family and partners) will create jeopardy for the people who have received assets from you for what CRA will assume are for purposes of tax payment avoidance. In other words, CRA collections will demand information from you (which you must provide) that will inform them of assets that you have hidden or transferred. There exists legislation regarding fraudulent conveyances.


If you haven’t filed your taxes in awhile, get started today to avoid these potential consequences:

Call or e-mail (1-877-800-9343 / for a free consultation with experienced and understanding professionals. In that time we are usually able to define your realistic options and CRA considerations that will lead to the best possible outcome for you. It is always manageable and much can be done.

All information is kept in the strictest confidence.

Read more about filing late taxes:

Our previous post: How to File Back Taxes in Canada

Or visit our Late Tax Filing page

How to File Back Taxes in Canada

Haven’t filed personal or small business (T1), corporate income tax (T2), or GST/HST returns in several years or more?

Have you been contacted by or acted upon Canada Revenue Agency (CRA) including a Request to File or a Notional Assessment (of exaggerated estimated amounts owing just to get your attention)? Or do you want or need to become up to date with tax filings for various personal reasons?

You may feel a sense of urgency or despair to catch up on unfiled previous years’ taxes. That’s ok, it taxes the mind too.

You may be tempted or receive advice to just file on your own online or visit a tax-preparer not specialized in late-filed returns and CRA encounters. However, there are many factors to consider when filing multiple years’ tax returns. It’s not just about catching up; you want to carefully consider your options and likely encounters with CRA. You will want to reduce your tax liability as much as possible as well. An experienced firm specializing in late filing, such as TaxWatch Canada, can help you achieve the best possible outcome for you. We suggest the following steps:

Step 1: Gain more insight.

Contact us for a free, no-obligation consultation to discuss the severity of your situation and receive vital insight regarding how the tax system really works. For example – how far back do you need to file? What about your spouse or live-in partner? What is considered tax evasion? How does CRA collect amounts due? How much time does CRA take? Should you consider and/or do you qualify for Voluntary Disclosure (tax amnesty)?

Step 2: Gather your documents.

For personal returns, you will need any and all T-slips (such as T4s and T5s). If you are missing any slips or are unsure if you have them all, you can get them online using CRA’s ‘My account’ or you can call CRA to have copies sent to you. (For more info about missing tax information you can read our other blog post: How do I get my previous years T4 and/or other tax slips?) There are severe penalties charged for missing more than one tax slip. If you have any credits to claim such as tuition, medical and/or donations, you will need those records as well.

For self-employed or corporate taxes you will need a more elaborate gathering of income, expenses and related transactions. Some sort of bookkeeping program or use of spreadsheets can solve many documentation issues. We can also help determine if the use of estimates is appropriate in cases of missing records.

Do not spend a great deal of effort summarizing your transactions until you talk to us (or the firm you want to use). This is a time and cost saver because you need to know how to use what data you have, what else is needed and who (you or the firm) is going to do what.

TaxWatch can assist with bookkeeping and review financial records and transactions to complete returns and provide the backup if CRA questions the returns. Note: the probability of a CRA audit (even for multiple years) is low.

Step 3: Get the big picture.

Have draft returns prepared for all unfiled years. This provides perspective and helps in choosing options that are relevant. Consider in advance how to best approach CRA regarding the tax debt outcome before you file. Attention has to be paid to possible late filing penalties and accumulated interest. If there will be a considerable amount of tax debt, consider how the debt can be managed and how it may affect you in other aspects of your life, for example, tax debt can impact lenders or other creditors and/or those who depend on you, it may also affect your receipt of CPP, OAS, pensions or employment income.

Step 4: Finalize returns and submit to CRA.

Give yourself credit for getting it done and await receipt of your Notice(s) of Assessment.

Step 5: Review your assessments.

Your assessments should be matched to what was filed and reviewed for penalties and interest inclusions. Note that the liability for multiple years is accumulated on the assessment. Sometimes CRA does not assess all years at once. The most recent year will have the cumulative total owing; do not add all the years together – heart attacks will be reduced.

If there are any discrepancies on the assessments address them. (TaxWatch will review and contact CRA is necessary on your behalf if you have engaged us to file your returns).

Step 6: Handle the debt.

Payment arrangements with CRA can be made. However, you should not make promises to them that you know you can’t keep just to temporarily appease them.  CRA collections have rather rigid payment guidelines but must be addressed. Do not avoid CRA or misrepresent things and you will prevail.  If needed, TaxWatch can review the merits and consequences of alternative solutions to tax reduction, including bringing more certainty to outcomes, even if it means entering the world of insolvency professionals for debt consolidation or bankruptcy.

Find out the potential consequences of not filing returns in our blog post here

Get Started

 We realize you may be in a sensitive situation and need someone trustworthy to contact about your late filing situation. If you are serious about moving forward in some way we would be happy to hear from you and will be straightforward and transparent in helping you in the way you that suits your situation the best.

Call or e-mail (1-877-800-9343 / for a free consultation with experienced and understanding professionals. In that time we are usually able to define your realistic options and CRA considerations that will lead to the best possible outcome for you. It is always manageable and much can be done.

All information is kept in the strictest confidence.

More information about our Late Tax Filing Service can be found here.