When a taxpayer becomes non-compliant the CRA has a number of financial penalties that it can impose to punish a taxpayer for filing late returns and/or failing to disclose income. Some penalties are calculated based on a percentage of the tax debt and other penalties are fixed based on an act. Businesses are subject to a wider range of penalties than individuals.
How are CRA penalties calculated? CRA will always charge an interest rate on a tax debt equal to 4% above prescribed interest rate compounded daily and interest also applied to penalties. Where business is concerned here is an outline some of very common CRA penalties:
- Late remitting and failing to remit could result in a penalty of up to 20%
- Failure to file an information return could result in a fixed penalty of up to $7,000
- Failure to collect a SIN could result in a $100 fine for each offence
- Failure to provide or maintain adequate records could leave you subject to a fine of up to $1,000
- Failure to deduct could leave you subject to a penalty of up to 10% of the amount that was to have been deducted for CPP and EI. If you fail to deduct more than once in one year you could be subject to a penalty of up to 20%
- Failure to file an ROE could result in a fine of up to $2,500
In addition to the penalties outlined about certain acts such as failing to pay amounts held in trust could result in the seizure and sale of your assets. Any act involving tax evasion (failing to disclose income, failing to file, failing to deduct, remit or report) could also leave you subject to prosecution and face imprisonment for up to 12 months. Acts like failing to file an ROE bear a fine but if you fail to file an ROE you could also be charged criminally and if this happens that charge could bear a jail sentence of up to 6 months.
There are ways to avoid or mitigate CRA penalties. First, if you have failed to declare income or are behind filing late returns – make the declaration and/or get the late returns filed! This is the most effective way to avoid criminal prosecution for tax evasion. If the CRA doesn’t know about the income you have declared and hasn’t inquired or hasn’t requested that you file a late return, you may qualify to file a Voluntary Disclosure Application. Through the Voluntary Disclosure Application process, if accepted, will mean that you will not be subject to financial CRA penalties.
If the CRA has demanded that you file a late return and once you did, were assessed penalties on the tax debt, you may also be able to make a taxpayer relief application under the Tax Payer Relief Program. To qualify under the Tax Payer Relief Program you must be able to substantiate that you have suffered financial hardship, an extraordinary circumstance like a fire or flood in your home, medical problem or be able to prove that there was an error made on the part of the CRA.
Outside of the Voluntary Disclosure Program and the Tax Payer Relief Program, hiring a company who specializes in tax resolution is a great way to effectively negotiate with the CRA so that a mutually amicable plan can be in place to deal with your tax debt so that you can avoid CRA enforcement action.