What if your tax return is late?

May 4, 2017

By Sheryl Smolkin

You left filing your 2016 income tax return to the last minute and a huge project came up at work. You look at the calendar and suddenly realize you have missed the May 1^st deadline. Or you have been working outside Canada for several years and didn’t file a return because you thought you didn’t have to.

What happens if your tax return is late and what can you do about it? Here’s what the Canada Revenue Agency has to say:

Interest
If you have a balance owing , CRA charges compound daily interest starting May 1, 2017, on any unpaid amounts owing for 2016. This includes any balance owing if they reassess your return. In addition, they will charge you interest on the penalties starting the day after your return is due.

The rate of interest charged can change every three months. For the first quarter of 2017 the interest rate charged on overdue taxes, Canada Pension Plan contributions, and Employment Insurance premiums was 5%. However, if you overpaid your personal taxes, the interest rate paid to you is 3%. See Prescribed interest rates.

If you have amounts owing from previous years, CRA will continue to charge compound daily interest on those amounts. Payments you make are first applied to amounts owing from previous years.

Late-filing penalty
If you owe tax for 2016 and do not file your return for 2016 on time, CRA will charge you a late-filing penalty. The penalty is 5% of your 2016 balance owing, plus 1% of your balance owing for each full month your return is late, to a maximum of 12 months.

If you were charged a late-filing penalty on your return for 2013, 2014, or 2015 your late-filing penalty for 2016 may be 10% of your 2016 balance owing, plus 2% of your 2016 balance owing for each full month your return is late, to a maximum of 20 months.

That’s why even if you cannot pay your full balance owing on or before April 30, 2017 you should have filed the return on time to avoid the late-filing penalty.

Repeated failure to report income penalty
If you failed to report an amount on your return for 2016 and you also failed to report an amount on your return for 2013, 2014, or 2015, you may have to pay a federal and provincial or territorial “repeated failure to report income penalty.” If you did not report an amount of income of $500 or more for a tax year, it will be considered a failure to report income.

The federal and provincial or territorial penalties are each equal to the lesser of:

• 10% of the amount you failed to report on your return for 2016; and
• 50% of the difference between the understated tax (and/or overstated credits) related to the amount you failed to report and the amount of tax withheld related to the amount you failed to note on your return.

However, if you voluntarily tell CRA about an amount you failed to report, they may waive these penalties. For more information, see Voluntary Disclosures Program.

False statements or omissions penalty
In addition, you may have to pay a penalty if you, knowingly or under circumstances amounting to gross negligence, have made a false statement or omission on your 2016 return.

The penalty is equal to the greater of:

• $100; and
• 50% of the understated tax and/or the overstated credits related to the false statement or omission.

However, if you voluntarily tell CRA about an amount you failed to report and/or credits you overstated, they may also waive this penalty.

Cancel or waive penalties or interest
The CRA administers legislation, commonly called the taxpayer relief provisions, that gives them the  discretion to cancel or waive penalties or interest when taxpayers are unable to meet their tax obligations due to circumstances beyond their control.

The CRA’s discretion to grant relief is limited to any period that ended within 10 calendar years before the year in which a request is made.

For penalties, the CRA will consider your request only if it relates to a tax year or fiscal period ending in any of the 10 calendar years before the year in which you make your request. For example, your request made in 2017 must relate to a penalty for a tax year or fiscal period ending in 2007 or later.

For interest on a balance owing for any tax year or fiscal period, the CRA will consider only the amounts that accrued during the 10 calendar years before the year in which you make your request. For example, your request made in 2017 must relate to interest that accrued in 2007 or later.

To make a request fill out Form RC4288, Request for Taxpayer Relief – Cancel or Waive Penalties or Interest. For more information about relief from penalties or interest and how to submit your request, go to Taxpayer relief provisions.

2016 Deadline, 2016 income tax, 2016 income tax return, Canada Pension Plan, Canada Revenue Agency, CPP, CRA, Form RC4288, Prescribed interest rates, Request for Taxpayer Relief

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