So the income tax filing date of April 30th for Sole Proprietors came and went, and you being the busy entrepreneur did not have an opportunity to file your return in time or make a payment if your return is due on June 15. What now!?
There are two different penalties that you can have imposed upon you by CRA.
Tax filings are late
- A penalty will be imposed of 5% of the balance owing plus 1% of the balance owing for each month your return is late, up to a maximum of 12 months.
- If you were also charged a late filing penalty in the past 3 tax filing years, you may be hit with a 10% penalty, plus 2% of the balance owing for each full month your return is late, up to a maximum of 20 months.
Payment is late
- If your payment is late, CRA will charge interest at their prescribed rate (roughly 5%) compounded daily starting on May 1, 2015.
- This can also occur if your return is reassessed and you end up having a larger balance owing. CRA will charge you interest on the amount outstanding starting as of May 1, 2015 even if the reassessment happens after that date.
The key take away here is to file on time and avoid penalties as they can be much larger, especially if there is a balance owing.
On the corporate income tax side, the penalties are the same as above, but you have 6 months to file your tax return after your corporate year-end.
How to find all of your information
If you are holding off on filing your personal income tax return because you cannot find all your income tax slips or think you will be receiving more – find out your information real easy by calling the CRA. When the income tax slip providers prepare their T4s, T5s, T3s etc. they must file with CRA as well.
(Be prepared for the phone call: You will have to provide some personal information to verify that it is you who is calling. This is usually your SIN, name, address and a figure from your previous year’s income tax return.)
Another method to have easy access to your information is to set up your online CRA account. This will allow you to view your slips and information online during the year. You can set up your own account by visiting the CRA website. This is an easy way to organize your tax filings and see what is outstanding according to CRA.
How to avoid fees even if you are going to be late
If you know you are going to be late, try to make a payment to avoid the penalties and interest based upon your best estimate. When you file late without a balance owing, you won’t be assessed with a penalty or interest.
Image credit: by 401(K) 2012, via flickr.com.