2016 Tax Penalties and Interest for Small Business Owners
The tax deadline for businesses has officially come and gone, and many business owners have dealt with the stress and can now relax for another year. However, if you are one those who’ve yet to file, for a variety of reasons, and know that you will owe money, you can expect to find tax penalties and interest applied when you do finally get around to filing.
What are those penalties? Here is a breakdown of what you can expect as far as the Canada Revenue Agency’s tax penalties and interest, applied retroactively, to a tax debt.
Interest. If you owe money after filing your 2015 taxes, compound daily interest is charged, retroactively from May 1, 2016, on any unpaid amounts owing. In addition, the CRA will charge you interest on the penalties for filing late (discussed below).
It is important to note that, if you owe for previous tax years, compound daily interest will continue to be charged on those amounts as well. Any payments you make are first applied to amounts owing from previous years, to pay off the oldest debt first.
Penalties. If you have not filed yet, and will owe for 2015, you can also expect a late-filing penalty. That penalty is 5% of your 2015 balance owing, plus 1% of your balance owing for each full month your return is late, to a maximum of 12 months.
Additionally, if you were charged a late-filing penalty on your return for 2012, 2013, or 2014 your late-filing penalty for 2015 could be as high as 10% of your 2015 balance, plus 2% of your 2015 balance owing for each full month your return is late, to a maximum of 20 months.
Failure to Report Income Penalties. If you fail to file taxes, at all, or leave out income, it is considered a failure to report income. If you failed to report an amount on your return for 2015 and you also failed to report an amount on your return for 2012, 2013, or 2014, you may have to pay a federal and provincial/territorial repeated failure to report income penalty. If it is discovered that you did not report an amount of income of $500 or more for a tax year, it will be considered a failure to report income and you could face penalties equal to the lesser of:
- 10% of the amount you failed to report on your return for 2015; and
- 50% of the difference between the understated tax (and/or overstated credits) related to the amount you failed to report and the amount of tax withheld related to the amount you failed to report.
If you haven’t filed your taxes yet, mainly because you know that there will be a balance owing once you do, remember: it is not illegal to owe the CRA, but it is illegal not to file. There are solutions available to you, including federal government programs that can stop the tax man, stop collections, stop penalties and interest and even reduce your principal tax debt. You just need someone to help you understand how they work.
For more about dealing with tax penalties and interest, or to get rid of that tax debt, please call DebtCare today at 1-888-890-0888.