What Happens When You File Your Corporate Taxes Late – And How We Can Help!
Let’s admit that. Preparing and filing corporate tax returns isn’t a very enjoyable process for most. Often with busy schedules, we tend to put it off for just a little longer. So, what happens when you file your corporate tax returns late?
By not filing your corporate tax return on time (or at all), you’re opening yourself up to a number of different penalties from the Canadian Revenue Agency (CRA). The deadlines for filing corporate income tax vary depending on the corporation’s fiscal year-end and what kind of corporation it is, but it’s very important to get your corporation’s T2 return filed on time because if you don’t, there are penalties.
Corporate tax returns are due six months after the end of the corporation’s taxation year. The CRA imposes a penalty if a return is filed after the due date. The penalty is 5% of the unpaid tax that is due on the filing deadline, plus 1% of this unpaid tax for each complete month that the return is late, up to a maximum of 12 months.
The corporation will be charged an even larger penalty if we issued a demand to file the return and we assessed a failure to file a penalty for the corporation in any of the three previous tax years. The penalty is 10% of the unpaid tax when the return was due, plus 2% of this unpaid tax for each complete month that the return is late, up to a maximum of 20 months.
Instalment Penalty
When the installment interest is more than $1,000, the CRA may charge an installment penalty. The penalty amount is calculated by subtracting the greater of $1,000 and 25% of the installment interest calculated if no installment has been made for the year. The difference is then divided in half to get the final penalty amount.
Penalties For False Statements And Omissions
When a small business or corporation intentionally or negligently makes a false statement on a return or omits important information, another penalty applies. The CRA will charge a penalty of 50% of the amount of understated tax or $100, whichever is greater.
Tax Evasion and Fraud has higher penalties. Tax evasion occurs when a small business owner or individual knowingly ignores tax laws to avoid paying taxes. This usually occurs when you underreport your income or overstate deductions to minimize the amount of tax you should pay to the Canada Revenue Agency (CRA). Those who are convicted of tax evasion can face the following criminal penalties:
- Jail time (though it is not very common)
- Fines of up to 200% of the amount the filer is trying to avoid paying
Are there any exceptions when CRA might waive the penalties?
It’s good to note that the CRA will sometimes consider waiving penalties or interest if the reason for a late filing or not paying is beyond the taxpayer’s control.
The three specific situations are:
- Extraordinary circumstances, such as serious illness or accident, and natural or man-made disasters.
- The actions of the CRA. These include errors in materials provided to the public, errors in processing, and undue delays in resolving an objection or an appeal.
- Inability to pay or financial hardship. When the payment of the accumulated interest a taxpayer owes would cause a prolonged inability to provide basic necessities such as food, medical help, transportation, or shelter, the CRA may cancel some or all of the amount owing.
These are not the only situations where penalties and interest may be waived; just some of the specific instances where some or all of the penalties and/or interest owing might be canceled.