Avoiding penalties and interest - Segment 10
Host: Welcome to the segment called Avoiding penalties and interest, part of the Canadian Students and Income Tax video.
With me is Frank Stewart. Welcome Frank.
Subject matter expert: Thank you Janice.
Host: What do I need to know about the consequences of not filing my return or not paying my balance on time?
Subject matter expert: It's important that you file any required returns and pay any tax balance owing on time, because penalties and interest will be applied on unpaid balances and penalties. Filing and remitting on time and correctly, ensures that you pay only the tax amounts that you have to pay.
Host: What types of penalties are there?
Subject matter expert: There are a few penalties.
One of the first penalties we'll talk about is the late-filing penalty. If you owe tax and do not file the T1 return on time, the CRA will charge you a late-filing penalty. The penalty is 5% of your balance owing, plus 1% of the balance owing for each full month that the return is late, to a maximum of 12 months.
If the individual has repeatedly filed late, the penalties can be more substantial.
Host: How do I avoid the late-filing penalty?
Subject matter expert: To avoid late-filing penalties, remember that generally, the T1 return is due on or before April 30th of the following year, although self-employed individuals and their spouses or common-law partners have until June 15th of the following year to file.
For more information on late filing penalties go to the CRA webpage on interest and penalties. The link is included in the Related links page for this segment.
Host: Are there any circumstances where the CRA might waive or cancel the penalty?
Subject matter expert: The CRA may waive or cancel this penalty as well as any interest that may apply if you file your T1 return late because of circumstances beyond your control. For more information, go to the Taxpayer relief provisions program webpage. The link is included in the Related links page for this segment.
Host: What if I don't report all of my income when calculating it for tax purposes?
Subject matter expert: If you don't report all of your income, you may be subject to a penalty of 10% of the amount you failed to report, after your first omission.
A different penalty may apply if you knowingly, or under circumstances amounting to gross negligence, participate in making a false statement or an omission on your T1 return.
The penalty is equal to either $100 or 50% of the understatement of tax and the overstatement of credits related to the false statement or omission whichever is greater.
Host: Are there any circumstances where the CRA might waive or cancel the penalty for failing to report income?
Subject matter expert: If you voluntarily tell the CRA about an amount you failed to report or credits you overstated, the CRA may waive this penalty. For more information, go to the CRA's Voluntary Disclosures Program webpage. The link is included in the Related links page for this segment.
Host: You've given us a brief summary of the penalties. You also mentioned interest. How does that apply?
Subject matter expert: The CRA will charge interest if your payment is late or insufficient. This interest is called instalment interest or arrears interest, depending on the debt.
The interest rate is determined every three months and compounded daily in accordance with the prescribed interest rate.
In addition to interest on taxes, the CRA will charge interest on the penalties starting the day after your return is due.
Go to www.cra.gc.ca/interestrates to find out about the different rates of interest. The link is included in the Related links for this segment.
Host: What if I am unable to make my payment in full on filing?
Subject matter expert: To avoid late filing penalties and interest, you should always file your completed T1 return on time and pay your full balance owing.
If you are unable to pay your entire balance owing, you can register with My Account and set up a payment plan. However, interest charges will apply for as long as you have an outstanding balance.
Host: I've heard some students talk about the underground economy, what is that?
Subject matter expert: The underground economy is sometimes also called the black market. It refers to economic activity where income is earned but not reported for income tax purposes and where goods or services are sold without paying taxes or duties. In an underground economy goods and services are often exchanged for cash and no records are kept.
Host: What does the CRA do to combat the underground economy?
Subject matter expert: The CRA works to maintain the confidence of Canadians in the fairness and honesty of Canada's tax system. As part of its efforts to fight the underground economy, the CRA works with the provinces, territories, private sector, and other countries to encourage compliance with Canada's tax laws and ensure that those who do not comply have no unfair advantage over those who do comply.
Host: Thank you Frank.
This concludes the segment called Avoiding penalties and interest, part of the CRA's Canadian Students and Income Tax video.
Thank you for watching.
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