If you have a balance of tax to pay, the tax authorities will soon start charging interest on the amount owing. Where payments are late, penalties will also be levied. The experienced Tax lawyers at Rogerson Law Group successfully help struggling businesses and individuals to settle their tax debt as soon as possible, helping them minimise or negate any potential interest and penalties.
How is interest charged on a tax debt?
Interest is charged on a compound daily interest rate. Compound interest is costly: it is interest calculated every day on the amount outstanding – including on the interest added on every previous day, ie, it includes interest on the interest.
Furthermore, interest is also charged on the penalties that arise beginning from the day after your return is due. Interest will only be waived in certain circumstances (we will advise you on whether you fall within any exemption).
Any sums you pay will be first applied to amounts owing from previous years.
What about penalties?
A number of different penalties may arise:
Failure to file in time: If you fail to file a tax return in time you will be charged a late-filing penalty. This penalty will be 5% of the amount owing if you have a 2015 balance plus 1% for every month your return is late (up to a maximum of 12 months).
If the CRA charges a penalty for an earlier return (2012 to 2014), the penalty for 2015 could be as much as 10% of your 2015 balance owing, plus 2% of your 2015 balance owing for each full month your return is late – up to a maximum of 20 months. Repeat offenders – beware!
Failure to report income: you could also be charged a federal and provincial/territorial penalty if you repeatedly fail to report income on your return.
Making false statements: if you knowing or negligently make a false statement (or omission), you may have to pay a penalty of up to 50% of the understated tax and/or the overstated credits related to your false statement or omission
Avoiding a penalty
Given that the penalties are so harsh, you can avoid being hit by a late-filing penalty by paying the full balance. However, in some cases this is simply not possible because of cash follow problems, other debts, and so on.
If you are risk of a penalty, you should seek specialist advice from our experienced Tax lawyers as a matter of urgency, so that we can help you avoid – or at least mitigate – any potential penalties. If, for instance, you voluntarily disclose the fact that you failed to report some income, or you overstated credits, the CRA may waive the penalty. You must have initiated this though – if you disclose it after the CRA requested further information from you, or has started a tax audit.
There are also taxpayer relief provisions under which the CRA has discretion to cancel or waive penalties or interest, in circumstances where a taxpayer cannot pay their tax burden, or otherwise discharge their tax obligations because of circumstances beyond their control. If you fall within this category – contact us urgently and we can contact the CRA on your behalf to fight your corner.
What should I do?
Contact us urgently. The longer the amounts are outstanding, the more you will be charged and the greater the risk of punitive penalties being added to your existing account. Tax is a complicated issue and we do not advise you to tackle it on your own. We understand how stressful it is to deal with outstanding tax, particularly when you are having difficulty in paying.
However, if matters are left to fester, you run the risk of having to declare bankruptcy or take alternative action that could leave you in a very difficult financial position.
Let us help you avoid this as far as possible. We are skilled at advising our clients in a sympathetic but strategic way to ensure their interests are best protected, and to save them as much money as possible in the longer term. With years of experience, we are also highly adept at dealing with the CRA.
The Tax team at Rogerson Law Group is led by Andrew Rogerson (the firm’s founder). We are highly experienced in advising and representing business and individuals alike who are facing difficulties complying with their tax obligations. Andrew is assisted by Arash Jazayeri who is a tax specialist.