Here’s a quick guide in case you ever wondered what the penalties are for not filing or paying your taxes as you’re supposed to. They range from a slap on the wrist to the potentially ruinous penalties for tax evasion:
Being Late With Your Tax Payment
The Canada Revenue Agency (CRA) imposes penalties for late payments to encourage timely compliance. If you file your tax return on time but fail to pay your taxes owed by the due date, you will be charged interest on the unpaid amount. This interest compounds daily, which means the longer you delay, the more you will owe. The interest rate can fluctuate, but you can look it up here. Additionally, the CRA may apply a late payment/incorrect payment amount penalty, which would further increase the amount you need to pay in interest.
Late Filing Penalties
This is when a taxpayer fails to submit their tax returns by the deadline. The CRA imposes a late filing penalty, which is typically 5% of your balance owing, plus an additional 1% for each full month your return is late, up to a maximum of 12 months. On top of this, interest will be charged on any unpaid taxes from the due date until the amount is paid in full. Additionally, filing late may result in the loss of certain benefits or credits that are contingent upon timely tax filings, such as the Canada Child Benefit or the GST/HST credit.
Not Reporting All Your Income
If you underreport your income on your tax return by $500 or more, the penalty is the lesser of either: 10% of the amount not reported, or, 50% of the difference between the understated tax or overstated credits for the amount you did not report and the tax not paid due to the amount you did not report.
If the CRA feels that you either knowingly or ought to have known, but were grossly negligent, that you made a false statement on your return, the penalty imposed is the greater between $100 and 50% of the understated tax or overstated credits.
Additionally, the CRA may choose to audit your previous tax returns if they suspect that underreporting has been a recurring issue.
Severe Examples of Not Paying Taxes
The most severe infractions are tax evasion and tax avoidance. Tax evasion involves deliberately avoiding tax payments through illegal means, such as hiding income or making false claims. Tax avoidance, while sometimes legal, involves manipulating the tax system in ways that go against its intended purpose. The penalties for tax evasion are harsh. Those found guilty of tax evasion can face heavy fines, often ranging from 50% to 200% of the taxes evaded.
Additionally, criminal charges can be laid, leading to imprisonment for up to five years for tax evasion and 14 years for tax fraud. Furthermore, the CRA imposes additional interest and penalties on top of the evaded taxes, compounding the financial burden. The CRA also has the authority to publicly name individuals and corporations convicted of tax evasion, which can severely damage personal and professional reputations.
The Bottom Line When it Comes to Not Paying Taxes
If you’re ever in a situation where you’re behind on your taxes, or haven’t been honest on your returns, talk to a tax lawyer right away. There is usually something that can be done to lessen the burden, especially if you haven’t been contacted by the CRA yet. The longer you wait, however, the harsher the potential outcome will be.