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What are the CRA Penalties for Late Tax Returns and How Should You Avoid It By Getting Your Tax Filed On Time?

What are the CRA Penalties for Late Tax Returns and How Should You Avoid It By Getting Your Tax Filed On Time?

Timely paying of taxes can save you from penalties and additional paperwork related to late payment of tax returns. Canada Revenue Agency requires its citizens to pay penalties for late tax returns. Let’s take a look at CRA penalties for late tax returns applicable for different circumstances.

CRA Penalties for late tax returns

  • Failure to file income returns on time requires the individual to pay penalty amount that is equivalent to 5% of the total owed amount plus 1% of balance owing for each complete month your return is late, to a maximum of 12 months. This penalty is only applicable for individuals who have been late in filing tax returns for the first time.
  • Individuals who have paid penalties for late tax returns in the past are required to pay higher penalty for late tax returns in 2014. For example, if you have paid penalty for late tax returns in 2010, 2011 or 2013, the penalty will be 10% of the total owed amount plus 2% total amount owed for each full month that your return is late, to a maximum of 20 months.
  • Individuals who have received demand to file and have not filed tax returns before due date are required to pay $250 as penalty for late tax returns filing.
  • Individuals who are required to file tax returns electronically and have been late in paying tax returns are required to pay $100 for initial tax return plus $250 for each following tax return not filed electronically.
  • Repeated failure in filing tax returns attracts federal and provincial penalties which are equivalent to 10% of the overdue amount.

Besides penalty amount for late tax returns, individuals are also required to pay compound daily interest on overdue amount. CRA charges basic interest rate plus 4% on the overdue amount. The basic interest rate is based on interest rate charged on 90 days treasury bills.

Tips to avoid CRA penalties for late tax returns

To avoid CRA penalties, individuals are advised to file income tax returns on time (before due date) even if it is not possible to pay full amount of your tax returns before due date. You should file your tax returns electronically before due date and approach CRA for a payment arrangement to pay your taxes.

CRA can waive off penalty if you are not able to file tax returns on time due to unavoidable circumstances. To get relief from paying penalty amount on late tax returns, you are required to fill Form RC4288 Request for Taxpayer Relief and send it to intake centre of your province.

Some of the unavoidable circumstances which are considered by CRA for waiving of penalty for late tax returns and interest levied on overdue amount are

  • Financial hardships
  • Man-made or Natural disaster
  • Serious illness/Accident/Death/mental or emotional distress
  • Civil disturbances
  • Any extraordinary circumstances not mentioned in the list

To get relief from penalty and interest on overdue tax amount, you are required to mention all circumstances and facts to support your penalty waive off request. You are also required to mention history of events and measures you have taken to correct your financial situation.

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