For most Canadians Thursday is the deadline for filing the 2008 income tax return.
If you owe the CRA money and do not file your return by midnight, April 30th you will be assessed a penalty of 5% of the outstanding amount plus 1% of the amount for each full month your return is late to a maximum of 12 months. If you have not filed on time in any of the past three years, the penalty doubles to 10% and 2% for each additional month to a maximum of 20 months!
Penalties & Interest
On top of the penalties, the CRA will also assess interest on your outstanding balance, including penalties at the CRA’s prescribed rate. The interest clock begins on May 1st and runs until you have paid your income tax bill.
Why Worry About The Penalty
It’s only 5% for late filing right. How much can this really be?
Consider the fictional case of William Smith. William had not filed his 2008 income tax return and had an amount owing of $1,400. Late filing will cost William $70 plus $14 for each month the return is not filed. If William waits a year to file, the penalty will be $238 and the interest on the balance owing, assuming the prescribed rate is 5%*, will be about $79. The total interest and penalties is $317 or 23% of the outstanding balance!
Can’t Pay? Still File
If William’s excuse was that we couldn’t pay the tax bill waiting to file cost him dearly! If William had filed his tax return but could not pay the balance until a year later, he would have only had to pay $72 worth of interest.
In many cases, the CRA will be flexible with payment of the outstanding amount. It’s advisable to speak with the CRA if you are unable to pay the amount you owe.
What About Missing Slips?
If the deadline is looming and you are unable to get tax slips before the due date, the CRA advises that you attach a note to your income tax return stating the payer’s name and address, the type of income you were paid, and what action you are taking to obtain the slip. You should then estimate the income you were paid from pay stubs and include it on your return.
* The interest on outstanding amounts is set by the CRA quarterly and is compounded daily on amounts owed.