Wednesday, 19 August 2015

Missed the Small Business Tax Deadline? Canadian Tax Penalties, Interest and Options!

Running a business is tough! Most small business owners are experts in their individual trades, but not necessarily experts in all aspects of business - or other businesses for that matter. For example, you may know how to unclog a toilet, or even install one, but you wouldn’t necessarily want to take on the task of outfitting the plumbing for an entire house. The same is often true when it comes to taxes; many small business owners are well versed in their own finances, but when it comes to their taxes, GST/HST and payroll deductions, etc., this can represent a whole different level of accounting know-how.

When the small business tax deadline passes, there are always a significant number of individuals who have missed it. Most often, small business owners miss the deadline for 5 reasons:

1.    Unsure of when it was
2.    Procrastinated on hiring someone to come in and prepare the books and returns
3.    Think that money will be owed and are not sure how it will be paid
4.     Missing some type of information, proof of expenses are just one example, and so don’t think that their return can accurately be prepared
5.    Think they will not owe and thus the deadline is more of a guideline…

If you are a sole proprietor or part of a partnership in Canada, the small business tax deadline was in June. We are now officially past that date, and so, if you have not filed, you’ve missed it.

If you missed the deadline, the following are the financial penalties:

o   If it is your first time filing late the penalty is up to 5% of the amount owing plus 1% per month for up to 12 months.
o   If you filed late in any of the preceding 3 tax years the penalty is up to 10% of the amount owing and then 2% per month for up to 20 months.
o   Keep in mind that interest is back-dated to the tax year, and accrues on both the principal and penalties!

If you missed the tax deadline, this is considered tax evasion and you could also be subject to criminal prosecution and further financial penalties. Owing money to CRA is not tax evasion, but failing to file is! One will lead to financial challenges, while the other could land you in court.

Often, late filing and tax avoidance is due to an underlying financial problem and an inability to pay. If you missed the small business tax deadline the best course of action is:

Step 1 – Get your books and returns prepared. If you don’t have receipts or other documentation, tell the accountant and they will tell you what you can and cannot include in the return.

Step 2 – Once the return/returns are prepared you will have a better idea about what you owe and can use the numbers above to estimate penalties. Be realistic about your finances. Consider CRA debt, other debt you have and what assets you want to protect.

Step 3 – Meet with a financial professional before you file to get a game plan in place for dealing with what you will owe to mitigate the blow-back of collection problems.

If you are worried about filing late and considering not filing at all because of a looming tax debt, our advice is to file right away to avoid a tax evasion charge, then deal with the debt with professional financial help. Call DebtCare Canada at 1-888-890-0888.

1 comment:

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