If you have a balance owing for a tax year, the Canada Revenue Agency begins charging compound daily interest on May 1 st of that year. The interest is charged on any unpaid amounts owing for that tax year. For example, if you have amounts owing for the 2017 tax year, the CRA will begin charging compound interest on the outstanding amount on May 1 st , 2018.
It is important to note that the amount includes any balance owing if the CRA reassesses your return. In addition, the CRA charges interest on the penalties you receive starting the day after your filing due date. The rate of interest they charge can change every three months. In 2018, the interest rate for personal taxes is around 6%. If you have amounts owing from previous years, the CRA will continue to charge compound daily interest on those amounts as well. Payments you make are first applied to the amounts owing from previous years.
How to Calculate CRA Penalty and Interest
If you owe tax and you file after the due date, the CRA will charge you with a late-filing penalty. The penalty is 5% on your balance owing, plus 1% of your balance owing for each full month your return is late, to a maximum of 12 months. If you repeatedly file late, the CRA will charge you a repeated late filer penalty which could be 10% of your balance owing, plus 2% of the balance owing for each full month the return is late, up to a maximum of 20 months.
Even if you cannot pay your full balance owing on or before April 30 th , 2018, you can avoid the late-filing penalty by filing your return on-time.
How to Calculate CRA Penalty and Interest – Unreported Income
If you did not report income on your tax return, and this is not the first year you have done so, you could be liable for a repeated failure to report income penalty. The penalty is the lesser of 10% of what you failed to report as income, or 50% of the tax you should have been paying. Not to mention, they will of course charge interest on this amount as well.
How to Calculate CRA Penalty and Interest – Gross Negligence Penalty
If you knowingly or under circumstances amounting to gross negligence, made a false statement or omission on your tax return, the CRA will charge you what is known as gross negligence penalties. The penalty is equal to the greater of:
If you have been assessed with CRA penalty and interest, and you do not think it is justified, we can help! We can determine whether your penalty and interest amounts are correct, and we can even look into getting rid of these enormous penalties for you. Call us to learn more.
This article provides information of a general nature only. It does not provide legal advice nor can it or should it be relied upon. All tax situations are specific to their facts and will differ from the situations in this article. If you have specific legal questions you should consult a lawyer.