Avoiding penalties and interest - Segment 6
Host: Welcome to the segment called Avoiding penalties and interest, part of the Preparing Your Income Tax and Benefit Return video.
This segment mentions webpages where you can get more information. You can find links to these webpages in the Related links for this video.
I'm your host Kathleen Sinclair.
With me is Frank Stewart. Welcome Frank.
Subject matter expert: Thank you Kathleen.
Host: Frank, what happens if I cannot file my return or pay 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. Filing correctly on time, and remitting on time ensures that you pay only the tax required
Host: What types of penalties are there?
Subject matter expert:The three common penalties are:
• late-filing penalty
• repeated failure to report income, and
• false statements or omissions
Host: What can you tell me about the late-filing penalty?
Subject matter expert: Well, if you owe tax and don’t file your return on time, the CRA will charge you 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 you have repeatedly filed late, the penalties can increase.
Host: How do I avoid filing a late penalty?
Subject matter expert: Well, your best bet is to file on time. Remember that your return is due, in most cases, by April 30 of the following year. Self-employed individuals and their spouses or common-law partners have until June 15 of the following year to file.
For more information on the late-filing penalty, go to the CRA webpage about interest and penalties.
Host: Are there any circumstances where the CRA might waive or cancel this type of penalty?
Subject matter expert: Yes; the CRA may waive or cancel the late-filing penalty and any interest that may apply if you filed your return late because of circumstances beyond your control. For more information, refer to the webpage about taxpayer relief provisions.
Host: Can you tell me about the repeated failure to report income penalty?
Subject matter expert: If you failed to report an amount of $500 or more on your return and you also failed to report an amount of $500 or more on your return for any of the last three years, you may have to pay a federal and provincial or territorial penalty for repeated failure to report income.
The federal, provincial, and territorial penalties are each equal to whichever of the following two amounts is less:
- 10% of the amount you failed to report on your return; or
- 50% of the difference between the under-reported tax plus the overstated credits, and the amount of tax withheld on the amount you failed to report.
Host: Are there any circumstances where the CRA might waive this type of penalty?
Subject matter expert: Yes; if you voluntarily tell the CRA about an amount you failed to report,they may waive these penalties through the Voluntary Disclosures Program.
This program does not apply to any return for which the CRA has started a review.
For more information, see the CRA Webpage about voluntary disclosure.
Host:Ok, the last penalty you mentioned was called the false statements or omissions penalty. Can you tell me about this one?
Subject matter expert: Well, this penalty may apply if you knowingly, or under circumstances amounting to gross negligence, make a false statement or an omission on your return. The penalty is equal to either $100 or 50% of the under-reported tax and overstated credits, whichever is more.
Host: You've given us a brief summary of the penalties and you also mentioned interest. How does that apply?
Subject matter expert: The CRA will charge interest if you make late or insufficient payments.
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.
For more information go to the CRA webpage about interest rates.
Host: What if I'm unable to make my payment in full on filing?
Subject matter expert:Well, to avoid late filing penalties and interest, you should always file your return on time and pay your full balance owing.
If you're unable to pay your full balance owing, you can set up a payment plan by:
• going online and using My Account;
• calling the TeleArrangement service at 1-866-256-1147; or
• calling the individual enquiries line at 1-800-959-8281
Just keep in mind that interest charges will apply for as long as you have an outstanding balance.
Host: Thank you Frank.
This concludes the segment called Avoiding penalties and interest, part of the CRA's Preparing Your Income Tax and Benefit Return video.
Thank you for watching.
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