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
- Failure to provide information on a prescribed form, including SIN: $100 per failure
- Failure to file GST/HST return: Greater of $250 and 5% of the GST/HST outstanding
- 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
- 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)
- 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.
- ‘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
- Willful attempt to evade taxes: 50%-200% of taxes payable plus pay all taxes due
- 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!
- 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
- 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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