The Canada Revenue Agency (“CRA”) can assess penalties for any number of reasons, but two of the most common penalties assessed by the CRA that can be easily avoided are failure to file penalties and instalment penalties.
A failure to file penalty is assessed for late returns, at a rate of 5% of the unpaid tax due on the filing deadline plus 1% of unpaid tax for each complete month that the return is late. The penalty is doubled if corporations are issued a demand to file prior to the failure to file.
Instalment penalties can be assessed if a corporation is required to pay instalments, and fails to remit the instalments in a timely manner. Instalment penalties will apply if instalment interest accrued from non-payment is over $1000 for the year. This penalty must be paid in addition to the accrued interest. Interest on instalment payments is compounded daily at the prescribed rate, currently at 6% interest. The penalty is calculated by subtracting whichever is larger of either: $1,000 or 25% of the instalment interest calculated (if no instalment payment has been made for the year) from the instalment interest and then dividing by 2.
Ex. If Instalment interest is $20,000 and no instalment payments were made as required, the penalty would be $7,500 in addition to the $20,000 of interest owed.
Both of these penalties are easily avoided by filing and paying instalments on time. The best way to ensure tax returns are on time is to forward your financial and tax documents as soon as possible to Bateman MacKay LLP. When paying offline, use the remittance slip provided by the CRA and write the account number and details of the payment on your cheque. We recommend sending by traceable mail. When paying online, use CRA’s “My Payment,” making sure to choose the correct CRA account. Finally, these payments can be confirmed using the CRA’s My Business Account. If you have any questions about CRA penalties and how to avoid them, contact your account manager at Bateman MacKay LLP.
If your income tax situation has changed due to marriage, retirement, additional income or other life changes, and you are unsure as to whether you should be making installments, please contact Bateman MacKay as soon as possible so the firm can determine if any action is required (in order to reduce any instalment interest).