Save Big on CRA Payments

The Canadian Revenue Agency (CRA) charges a penalty for late filing of corporate tax returns. As a Canadian business owner, you might not realize just how much you’re paying when you’re late or don’t file your corporate taxes properly.

Late penalties compound the longer you wait. The first late fee is based on an interest rate on balance owing of 5%, plus 1% each additional month that they are outstanding. That’s only for the first year. Any subsequent years owning penalties are 10% added to the compounding balance due, plus an additional 2% per month.

Let’s say you forgot to report some income. For the current year plus the past 3 years, if you fail to report an amount of $500 or more in income you can end up paying 10% of the unreported amount and 50% of the difference between the understated tax payable and the amount of tax withheld.

However, if you knowingly or negligently make omissions on a tax return, the CRA imposes a severe penalty that is the greater of $100 or 50% of the understated tax.

For source deductions, penalties for late remittances can range from 3% to 10% of the amount owed (depending on how late the payment is). Subsequent late filings in the same calendar year could incur a 20% penalty.

Late filing penalties also apply to GST. The penalties for late filing are calculated according to the formula A + (B x C). A is 1 percent of the amount owing; B is 25 percent of A, and C is the number of months overdue to a maximum of 12.

If you have employees you must remit payroll deductions (CPP, EI, and income tax) on time. Failure to do so results in a penalty starting at 10% of the unpaid amount, which can increase to 20% for repeated offences within a calendar year.