A Look at 2021 CRA Tax Penalties and Interest
Some people speculated that the tax deadline may be extended again because of continued COVID-19 related impacts. That wasn’t the case. If you are planning to file your return late, have late returns, or have undeclared income, it’s prudent to understand what penalties and interest you could face. CRA penalties and interest vary according to your history and some other factors.
Late Filing Tax Returns
If you file your 2020 tax return after April 30, 2021, you will be subjected to a 5% penalty based on your 2020 balance owing. You will also pay 1% of the balance owing each full month for up to 12 months.
If you also filed late in 2017, 2018, and 2019, you may be subjected to a late filing penalty of up to 10% of your 2020 balance owing. You will also have to pay 2% of the balance owing for up to 20 months.
Repeated Failure to Declare Income
If you failed to report income in 2020 and in the prior 3 years (2017, 2018, 2019), you may be subjected to the following penalties:
· 10% of the amount you failed to report on your 2020 income tax return,
· And 50% of the difference between the understated tax and/or overstated credits related to the amount of income you failed to report.
Making Omissions and False Statements
If you made a false statement on your 2020 return, the penalty is the greater of:
· $100 fine,
· And 50% of the understated tax and/or overstate credits.
You can apply the same penalty calculations to determine your tax debt for prior years. Keep in mind that interest is applied to the tax debt and penalties are assessed retroactively (to each tax year that the penalties apply to).
You Owe Taxes or Think You Will and Can’t Pay
Not having enough money to pay your taxes can be scary because the CRA has expansive enforcement capabilities such as wage garnishments, placing property liens, and freezing bank accounts.
However, prioritizing your tax filings is critical in reducing your penalties and avoiding prosecution from the CRA.
It’s critical to devise a good plan so that when you file your taxes or approach the CRA, you know the options and protections available to you. You can work with a Licensed Insolvency Trustee to restructure your debt to something that is manageable.
For more information about CRA penalties, interest, or dealing with tax debt, you can always reach out to us. Visit www.dldebthelp.ca or call us at 1-877-732-5457.