Being behind on tax filing is never favorable for a business’s smooth functioning. The government authorities are there to ensure that no business can avoid taxes for a long time.
They also make sure that not paying taxes or filing late is not equivalent to filing on time, and they attach such penalties to it that people may feel inclined to prefer timely filing.
The following is an account of the significant implications of being one year late on your taxes as a business.
Following are some of the implications of being a year late on your taxes as a business:
The CRA will impose penalties for late filing of taxes. If your business is falling behind on taxes, the following are the formulae with which you can calculate an approximate amount of what you owe:
For a small business, late filing can lead to a substantial increase in your financial liability.
Typically, the CRA uses the following formula to calculate your business taxes:
The above information indicates that if you are behind on taxes, you should hurry to file, as every passing month aggravates the penalty.
For a large corporation, tax penalties can be considerable. As a rule, in case of being late, the following is the penalty:
A non-resident corporation (A corporation incorporated outside of Canada but with its central management and control situated both in and outside Canada) will be subject to a penalty as follows:
In any other circumstances, the following is a general rule:
5% of tax owed, plus 1% with each passing month.
Late filing of taxes can have implications beyond your business.
Before delving into it, understanding pass-through and non-pass-through businesses is essential, so let’s first examine them.
There are two types of business structures regarding liability.
In pass-through companies, the tax liability is personal, and the owners are individually liable to pay the taxes.
Pass-through businesses include sole proprietorship, partnership, or S corporation, etc.
Similarly, a non-pass-through business is the one that creates a shield between government institutions or other creditors and the owner himself.
In this way, the business owner does not have personal liability for paying the taxes.
If your business is of pass-through kind, filing the taxes late may have personal implications. The government may deprive you of tax credits and other governmental programs, such as child benefits, individual tax credits, and other support programs.
To assess your eligibility for credits this year, you must file your taxes on time.
Credit rating is about the reliability of your business as a borrower.
If you are late filing your taxes, it gives an impression that your business needs to be more reliable for a creditor to lend money.
In this way, it will be difficult for your business to procure credit funds when you need them in future.
It is another reason why you should file your taxes on time.
Like a drop in credit rating, late tax filing may cause reputational damage to your business.
Your business will become less attractive to the public and lose revenue.
The CRA will not keep waiting for you to file the taxes. Instead, it will take specific actions to force you to pay the dues.
Following are some of the tools that the CRA employs to recover the taxes:
The Canadian Revenue Agency can withhold the refund on dividends.
Corporations typically receive refunds called Refundable Dividend Tax on Hand, “RDTOH.”
It can be a significant loss to the Corporation.
Even then, if the Corporation does not pay the taxes, the Canadian Revenue Agency can garnish its accounts to receive the money due.
With the mounting financial burden on your business due to non-payment of taxes and compounding interest, your business productivity may need to be improved financially and psychologically.
So, it is essential to do something now which the government will force you to do later.
The Canadian Revenue Agency may conduct frequent audits and investigations on your business if you are late filing taxes repeatedly. Similarly, it can make its investigation and Audit conditions more stringent for your business, which will be an unnecessary headache.
Payment of taxes and timely filing for a business is not only a national responsibility but a legal obligation. The government ensures that no business entity can operate without paying due taxes. So, it is better to fall in line than to face the music. Contact your attorney today if your business needs to be on time for taxes.
