Whether you're a seasoned procrastinator or were waiting on tax forms that never arrived, filing your taxes late does happen. Navigating the next few weeks after you miss the tax deadline is crucial to minimize your penalty burden and keep the CRA from sending you a letter. If you do file your taxes late, request an extension, understand the assessed penalties, analyze payment plan options, and learn ways to file timely going forward.
File an Extension
Individual tax returns are due April 30th of each year; however, if you earn business income, you are able to file up until June 15th. In some instances, the CRA will grant a 12-month extension, but this is only if you have a pending assessment that you are disputing. Keep in mind the additional 1 ½ month that you are able to use if you are a self-employed individual. This can be a great way to push off your tax filing deadline without filing late.
Understand the Assessed Penalties
The CRA assesses stiff penalties for late tax filings and payments. If you file your return after the due date and owe an amount due, you will be assessed a 5% penalty of your outstanding balance plus an additional 1% for each month the balance goes unpaid (Government of Canada).
Let's say you owe $10,000 and pay the taxes 2 months late. You will be assessed a $500 penalty plus $100 for each month that tax balance is outstanding. This can add up the longer your balance is outstanding, making it critical to file your taxes as soon as possible.
Analyze Payment Plan Options
The CRA understands that paying taxes can place a monetary burden on individuals, which is why they offer payment plan options. The CRA will first calculate your monthly income and expenses to determine how much you can afford to pay. Then, you will need to speak with a CRA agent to work out the details of your payment plan. These payments can be made online or by mail and will have interest assessed; however, a pre-determined payment plan is better than foregoing paying the taxes altogether.
Learn Ways to File Timely Going Forward
Avoiding filing late taxes should be at the top of your priority list. Understanding the deadlines you are subject to is the first way to file timely going forward. Plan on having all your documents together by the end of March to give you or your tax preparer enough time to put everything together. Additionally, be in contact with an accountant or tax preparer well before year-end to ensure they can fit you into their schedule. Finding an accountant last minute is often difficult and opens the door to errors on your return.
Summary
Filing your taxes on time should be a priority; however, there are ways to minimize the impact of late filings. Requesting penalty abatement is one way to lower the fines associated with late filing. For more information on if this applies to your situation, reach out to us today.
We prepare CPA compliant compilation year end financial statements, offer full bookkeeping services on all leading accounting software platforms, personal and corporate income taxes, or GST/HST and provincial sales taxes. In short, we do it all! No matter what province or territory you reside in. Please contact us with any question you may have regarding our services. Our goal is to answer your concerns within one business day.
Sources
Government of Canada. "Interest and penalties on late taxes." Government of Canada, 18 May 2022, https://www.canada.ca/en/revenue-agency/services/tax/individuals/topics/about-your-tax-return/interest-penalties/late-filing-penalty.html. Accessed 9 Sep 2022.