Having a tax debt is a situation no business should ever find itself in. If, for any reason, you find that you are behind on taxes for multiple years, it’s crucial to grasp the gravity of the situation. Further delay can escalate the issue, leading to more severe penalties and even legal actions. This stark reality underscores the immediate need to address this issue promptly and effectively.
The CRA has provisions to accommodate you, no matter how many years you are behind. You are not alone in this. However, it would help if you took the initiative to get back on track and reduce the hefty penalties you have already incurred.
Here is a to-do list for you if you are late by multiple years:
The first step is to prepare your documents, which are the backbone of your filing. Note that you may pay your taxes without documentation, but within six years, the CRA can conduct an audit and demand receipts from you.
Following is an inexhaustive list of documents you should look for:
4. Tax forms.โฏIncluding:โฏโฏ
It would help if you had a prior idea of how much you owe. โฏ
The CRA imposes hefty penalties for having a tax debt, increasing exponentially over time. โฏโฏ
Assessing your position first is mandatory to be in a better position to negotiate with the agency.โฏโฏ
Here is a simple method to ascertain the penalties:โฏ
Small business:
A+(B*C), {A= 1% of tax liability, B= 25% of A, C=Number of Months}
Large Corporation,
0.0001% of the total taxable capital in Canada + 0.25% of tax payable.โฏโฏ
A non-resident corporation:
$100 ORโฏ$25 for each complete day of delay, up to a maximum of 100 days, whichever is greater.โฏ
In other cases: 5% of the tax rate, plus 1% with each passing month.โฏโฏ
In addition:
There are additional provisions for a delay above three years:
10% of your balance owing. Anโฏadditional 2% for each full month you file after the due date, to a maximum ofโฏ20โฏmonths.
Penalties and interests apply after the following:
You can file for a waiver if you’re eligible after consulting your lawyer. A waiver is not a matter of right but of exception. It applies only to exceptional circumstances such as natural disasters or calamities.
A voluntary disclosure program is an option the CRA gives to late filers and wrong filers. It allows you to present yourself to the agency before it finds you.
It is applicable in the following circumstances:
Sometimes, a voluntary disclosure can relieve you of prosecution, penalties, and partial interest.
According to the CRA, a voluntary disclosure cannot be unfair to other Canadians, most of whom are just filing their taxes. So, it is not for intentional tax avoidance.
The Tax Act of Canada gives wide-ranging powers to the CRA and to the officers to collect tax debts.
In many cases, taxpayers are astonished when the CRA freezes their bank accounts, liens their assets, and garnishes their receivables.
Following are the ways the CRA can compel you to pay the taxes:
If you have lent money to someone, under subsection 224(1), the minister may direct him to pay the sum to the CRA instead of you.
Under subsection 225(1), the minister can seize and sell your goods and chattels.
What do you do if you want to pay your late taxes but fear that CRA may seize your goods?
You can file an appeal with the Tax Court of Canada. In this case, the agency will not exercise its seizure and sell power until 90 days after the Tax Court decides your appeal.
The CRA cannot collect tax debts or take any action against you in this regard if ten years have elapsed since the payment became due.
No, you should not. Because:
There are certain internal limitations in place. To name a few:
The foremost step you want to take to buy some time for filing your late taxes is to negotiate a payment plan with the CRA.
In this case, they will charge you with interest but not take you to the court.
But if you have unpaid taxes and you don’t even talk to them, they will undoubtedly take you to court.
If you have a multi-year tax delay, consult an income professional immediately. He could help you file your taxes and help you carve out some room for forgiveness and relief from the CRA.
Dealing with your tax debts is better than facing the high penalties and stress that being an outlaw causes.
