In Canada, it’s rumoured that up to 90% of small-to-mid-sized businesses have paid Canada Revenue Agency (CRA) penalties and/or interest within the last two years. Quite frankly, 90% seems absurdly high to us; but the actual number is probably not far off.
Why is that? The answer is simple – being late. And when it comes to money owed, CRA does not play Mr. Nice Guy.
However, there are different degrees of late and each one comes with different consequences. Fail to pay any taxes owed by the deadline and the amount owed is subject to interest fees. Fail to file your returns or remittances on time and any amount owed is subject to a late-filing penalty as well as interest.
And unlike bank fees and loan interest, CRA penalties and interest are not tax deductible. That’s because bank charges are considered part of the cost of doing business, whereas CRA penalties and interest are not; they are a completely avoidable business expense.
Penalties become even more severe when the late filing is a source or payroll deductions. These types of deductions are money that you are holding in trust for CRA, and just like your employees expect to be paid on-time, so does the government.
CRA will admit to sometimes making clerical errors and wrongfully applying penalties or interest against a business. If you believe this has happened to your business, get your accountant involved, review your books and, if necessary, file an objection. You have 90 days to do so.
So, how do you avoid owing CRA more than necessary? The answer is simple; don’t be late.
Even if cash flow doesn’t allow for paying the amount owed at the time it’s owed, file by the deadline anyway. You’ll still be dinged interest on the amount owed for every day you’re late paying but you won’t also be dinged with a compounding penalty. Even if you don’t have all of the necessary information to file by the deadline; file anyway. Again, this avoids the late-filing penalties and an amendment can be filed after the fact.
Obviously, if you don’t owe anything, there’s no penalties or interest to be levied. But don’t slack off on your filing deadlines. CRA can become wary of businesses that continually fail to file on time and begin to wonder if they’re hiding something. And that kind of wondering can lead to the dreaded audit.