What if You Don’t Pay Your Taxes on Time?

Daniel Teo
by Daniel Teo March 15, 2016 / No Comments

Your personal income taxes for the 2015 tax year have to be filed on or before April 30, 2016. Any taxes owed are also due on the same date. This year, the due date falls on a Saturday. Your return is considered to be filed on time if the Canada Revenue Agency (CRA) receives it or it’s postmarked on the next business day: May 2, 2016.

Every once in a while, circumstances may arise that prevent you from filing or paying your taxes on time. If your situation dictates that you’ll be late, here are the consequences if your taxes aren’t paid on time:

Interest is accrued

If you haven’t paid your taxes beyond the cutoff date, the CRA will begin to charge interest, compounded daily, on the unpaid amount. This includes any additional balance owing once the CRA has reassessed your return. The interest charged is subject to change every three months in accordance with the latest prescribed interest rates.

Late-filing penalty is charged

If you have an outstanding balance for the tax year and don’t file your return on time, the CRA will charge a late-filing penalty. The penalty is 5% of your 2015 balance owing, plus 1% of your balance owing for each month the return is late, to a maximum of 12 months. That’s a maximum penalty of 17%!

Furthermore, if you file late more than once in a four-year period, your late-filing penalty can be doubled. If the CRA charged a penalty on your return in either 2012, 2013, or 2014, your late-filing penalty could be 10% of your 2015 balance owing in addition to 2% of your 2015 balance owing for each month your return is late, to a maximum of 20 months–a maximum penalty of 50%.

The late-filing penalty doesn’t apply if you don’t have any taxes owing. Keep in mind that some credits may be delayed, including Canada child tax benefit payments and Old Age Security benefits.

A repeated failure to report income penalty can be charged

Failure to report income over $500 more than once within a four-year period will result in a repeated failure to report penalty. The penalty is hefty–up to 20% of the income not reported on your return–and is calculated based on the second failure to report income.

Voluntary Disclosure Program

Should you be in a situation where you have not filed your taxes in several years and know you have taxes owing, consider taking advantage of the CRA’s Voluntary Disclosure Program. This disclosure must come prior to any compliance action, such as an audit, appointed by the CRA. If the CRA accepts the voluntary disclosure, you may only be charged the taxes in addition to interest owed while avoiding penalties and potential prosecution. To apply for voluntary disclosure, use form RC199 Voluntary Disclosures Program (VPD) Taxpayer Agreement.

Taxpayer relief provisions

On occasion, the CRA does cancel or waive penalties or interest. It can also decrease the amount owing, reduce the penalties and interest owing, or designate an alternate method of repayment. The CRA will only consider the request if it relates to a tax year within the last 10 calendar years; a request made in 2016 applies only to tax years 2006 or later. To request relief, use form RC4288 Request for Taxpayer Relief.

The last word

The good news is if you don’t owe taxes, you don’t have to file a tax return but you can’t claim any refunds.

However, the bad news is that Canadians who don’t pay their taxes on time face stiff penalties and are subject to interest payments. While the CRA does offer voluntary disclosure and taxpayer relief provisions, neglecting to pay your taxes on time will make tax season more expensive than it needs to be. Even if you don’t have enough funds to cover the taxes owed, pay what you can. Your balance will be subject to interest, but at least you won’t have to pay the penalties.

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