by Jeff KirshenGST/HST Rebates when Buying Canadian Property
Houses are expensive, so it is important to take advantage of any program that allows you to recover some of your costs. The New Residential Rental Property Rebate (“NRRP”) and the New Housing Rebate (“NHR”) allow you to do this. However, the criteria can be confusing, and people often apply for the wrong one, or their circumstances change and the application that they originally applied for is no longer appropriate. That is why it is important to know the differences.
The New Residential Rental Property Rebate
The NRRP allows you to recover some of your costs when you purchase real estate that will be used as residential rental property.
The New Home Housing Rebate
The NHR allows you to recover some of your costs when you construct or substantially renovate a home.
What are the Criteria for Applying?
The criteria for an NHR are:
- The home must be used as a principal residence; and
- The construction must be for a newly built home or for substantial renovations or major additions
- Substantial renovation must include gutting the entire home with at least 90% of the dry wall removed; and
- A major addition must at least double the size of the home.
The criteria for an NRRP are:
- First occupants of the new residential rental property must be the tenants;
- First occupants cannot include the landlord; and
- The fair market value of the qualifying residential unit at the time the tax was payable must be less than $450,000.
- If you are a resident of Ontario and the fair market value exceeds $450,000 you may be eligible to claim the provincial NRRP.
If you receive the NRRP and then sell the residence within 1 year, you may have to repay the entire rebate unless you sell it to a person who occupies it as their principal residence.
How to Apply?
You can apply for an NHR by:
- Within 2 years are the property closes, complete either Form GST191 for owner-built houses or Form GST190 for houses purchased from a builder; and
- Provide the appropriate supporting documentation.
You can apply for an NRRP by:
- Within 2 years after the property closes or sells, complete Form GST524; and
- Provide the appropriate supporting documentation.
Change in Circumstances
If you purchase your home with the intention of making it your primary residence, often the builder will apply for the NHR on your behalf, thus lowering your purchase price. However, if your circumstances change, and once the home is built you are no longer the first occupant, you no longer meet the criteria of the NHR. However, if you rent out your new home, you could very likely qualify for the NRRP instead.
When this occurs, it is very possible the CRA audits you to determine if you qualify for the rebate. We see quite a lot of this and can assist with your audit!
Other Issues to Note
The principle residence exemption can also result in tax implications upon the purchase or sale of property.
Property assignment can result in GST/HST as well as income tax implications. Assignment is when you purchase a pre-construction home or property, and sell the property before it is built and before you gain title to it. In other words, you are assigning your purchased rights to a home to another person.
If you have any questions about the tax consequences that relate to purchasing or selling property, contact our firm for a free consultation. We are here to help!
**Disclaimer
This article provides information of a general nature only. It does not provide legal advice nor can it or should it be relied upon. All tax situations are specific to their facts and will differ from the situations in this article. If you have specific legal questions you should consult a lawyer.
by Jeff KirshenWhat is a Defacto Director’s Liability Assessment?
A Defacto Director is someone who acts as a director, but is not a director on paper.
Directors of a corporation can be found jointly and severally liable for certain tax debts of a corporation under section 227.1 of the Income Tax Act and 323 of the Excise Tax Act. Directors’ liability arises in one of two ways, either in fact or in law. For more background material on this distinction, and on director’s liability, feel free to consult our blog post that discusses the topic at greater length.
It is possible to become a de facto director by accident, without knowing or recognizing this designation at the time of dealing with the corporation. Officers, employees, and those whom are not legally appointed or elected but who perform the functions that directors would perform, may be liable. It is imperative that individuals are vigilant and careful in their dealings with struggling corporations, as well as, those that are known to be failing to remit GST/HST or their payroll source deductions.
Defending Against a CRA Director’s Liability Assessment
All directors whether deemed such or those validly elected to the position can use procedural defences to protect against the assessment of liability. Furthermore, de facto directors can use the due diligence defence to prove that they acted responsibly and with due diligence, allowing the director to avoid liability. As well, there is a statutory limitation under section 227.1(3) of the Income Tax Act. This limitation on assessment protects any individual from being assessed on the basis of directors’ liability if they ceased to be a “de facto director” more than two years prior to assessment. The only other way to avoid being deeming such is to prove via the common law that one’s actions should not deem them a director.
Defacto Director Tax Court Cases
There is a test established by jurisprudence to determine whether one’s actions arise to the level of de facto director. As well, the Tax Court of Canada found for a Taxpayer not being de facto director on the grounds of documentary evidence alone.
In Mosier v. The Queen, 2002 GTC 28, a case where the taxpayer was deemed not to be a de facto director, the Tax Court of Canada Court heavily weighed documentary evidence. Specifically, the court relied on evidence which indicated that the powers and duties of the taxpayer were very extensive. The Court ultimately held that the taxpayer was not a de facto director as only the power and responsibility of running the day-to-day operation of the corporation were conferred to the taxpayer, but the power to participate in pure directorial acts was not.
As well, there is not a single factor which determines whether someone is a de facto director. Instead, the courts consider, as in Soper v. The Queen, a number of different non-exhaustive indicators to determine whether an individual is a de facto director:
- Whether the individual has been signing documents as a director;
- Whether the individual has been signing tax returns;
- Whether the individual has been attending director’s meetings;
- Whether the individual introduces themselves to third parties as a director;
- Whether the individual signs directors’ resolutions; and
- Whether the individual plays a significant role in supervising the management of the company or otherwise controlling the company.
If you have received a pre assessment letter threatening de facto director’s liability, or an assessment for Director’s Liability, we strongly recommend giving us a call. If found to be a director, you may be held liable for enormous amounts of money due to unpaid GST/HST or source deductions even when it was not your fault. The process can be quite complicated, with many moving parts that are time sensitive, so it is best to have legal counsel helping you navigate through it. Don’t delay, contact us for a free consultation today!
**Disclaimer
This article provides information of a general nature only. It does not provide legal advice nor can it or should it be relied upon. All tax situations are specific to their facts and will differ from the situations in the articles. If you have specific legal questions you should consult a lawyer.
by Jeff KirshenPossible Taxes on the Sale of a Principal Residence
When you sell your home, you may realize a capital gain. A capital gain is a profit earned on the sale of property. However, there is an exception to this rule if your home is a principal residence which would allow you to pay no taxes on the sale.
What is the Principal Residence Exemption
The principal residence exemption allows homeowners to avoid paying taxes on the capital gains realized from the sale of their primary residence. If a property qualifies as a taxpayer’s principal residence, he or she can use the principal residence exemption to reduce or eliminate any capital gain otherwise occurring, for income tax purposes, on the disposition (or deemed disposition) of the property.
The Principal Residence Exemption and the 2016 Changes
Prior to 2016, for every year you have owned your property, it was your sole residence, you did not have to report any income tax on the profits from the sale of your home, or to report the sale of a principal residence at all. However, in an effort to ensure only eligible homeowners benefit from the exemption, the federal government now requires that taxpayers report information such as the proceeds of sale, and details of the transaction to claim the principal residence exemption. See our other article regarding designating your property here: How do I designate a Property as my Principal Residence – T2091 Form
For 2016 and onwards, this information is provided by the taxpayer on Schedule 3 of their income tax return, and by filing Form T2091, Designation of a Property as a Principal Residence by an Individual, for the year the property is sold. It is important to note that only one home is eligible for a principal tax exemption for any given tax year.
If you have sold your home and not reported it in your income tax return, it may be appropriate to submit an application through the Voluntary Disclosures Program to avoid significant penalties.
The Principal Residence Exemption and Possible Taxes
If you sell your principal residence, normally the profits are tax free. However, the Canada Revenue Agency (CRA) may claim that you are in the business of buying and selling homes. If this is the case, then your profit could actually be termed business income. You would have to include 100% of the profit as income, and you don’t even get to claim it as a capital gain which would have cut the taxes in half.
Additionally, if you are found to be in the business of buying and selling homes, the CRA may come in and say you should have charged GST/HST on the sale of the property. If this occurs, all of a sudden 13% (in Ontario) of the total purchase price actually counts as GST/HST. Which means you might owe hundreds of thousands of dollars in GST/HST which may remove your entire profit margin.
If either of the above happen to you, it is likely that the CRA will charge you their worst possible penalty known as gross negligence. This adds 50% of the amount owing as a penalty. So if you now owe $100,000, you will actually owe $150,000 before they even start calculating any interest charges.
If you have recently sold your principal residence, and you are worried about the above, call us today! Or if you are being audited for the sale of your principal residence and you need professional assistance, we are here to help! Contact us today!
**Disclaimer
This article provides information of a general nature only. It does not provide legal advice nor can it or should it be relied upon. All tax situations are specific to their facts and will differ from the situations in this article. If you have specific legal questions you should consult a lawyer.
by Jeff KirshenAssigning Property and the GST/HST Implications
Assigning a property is selling the property before you even own it. So you are just selling the contract which contains the right to close on the property. You purchased a property pre-construction condominium with a builder, signed the contract, gave your deposit cheques, and then sold the property before gaining title. For the assignor (the person selling the property), there can be serious tax implications.
Assigning a Property and the CRA
Upon detecting an assignment, the Canada Revenue Agency (CRA) will decide whether or not you should be considered a “builder” of the property. The test the CRA uses is subjective: they try to determine what your intention were when you purchased the property and why you’re selling. They ask questions like:
- Did the seller ever intend to live there; and
- Was this transaction intended to generate profit?
More often than not, in our experience the CRA considers assignors builders if they never took occupancy of the property. And if you are found to be a builder by the CRA, they hold you liable for HST on the sale.
Assigning a Property and the GST/HST Implications
If the CRA considers you to be a builder, they expect you to charge and remit sales tax (GST/HST) on the full sales price. The problem becomes almost no one does this on the original sale. Only once CRA has come and audited do they determine you to be a builder, and rule that GST/HST should have been charged.
Because this normally happens after the fact, most “builders” are unable to collect the GST/HST from the purchaser, and are now liable for the amount owing plus penalties and interest. This is typically where most people will file notices of objection, arguing that they are not “builders” and should not be responsible for GST/HST.
Additionally, once the CRA comes and audits you for one sale, they will review your entire history of buying and selling properties to see if they can determine that you are selling property as a business, and are therefore running a property selling business. They would further audit you to see if any use of the principal residence exemption was correct, if you are entitled to capital gains, or if you should have been claiming business income. Again, the issue with CRA determining that you should be claiming business income is that there are GST/HST implications as above.
If you have recently assigned a property, or have been assessed for the assignment or sale of a home/property in the course of a business, call us today! We can help!
**Disclaimer
This article provides information of a general nature only. It does not provide legal advice nor can it or should it be relied upon. All tax situations are specific to their facts and will differ from the situations in this article. If you have specific legal questions you should consult a lawyer.
by Jeff KirshenTax Requirements for the Gig Economy in Canada
The Canada Revenue Agency (the “CRA”) requires all taxpayers to file income tax returns every year. Since Uber, and other similar companies, have arrived on the scene there have been questions about the tax implications of working for a company in the gig economy like Uber.
Status of Uber Drivers
The CRA considers Uber drivers to be self-employed, or independent contractors. As far as the ride-sharing companies are concerned, you are the owner of a separate business that it uses to provide driving services.
So, drivers follow similar rules to all other self-employed individuals. Importantly, this means that Uber drivers do not receive T4 slips from Uber. Rather, Uber drivers are responsible for paying their income tax by the regular tax filing deadline. This is the case because Uber does not deduct taxes from the income made by Uber drivers throughout the taxation year.
Tax Structure of Working in the Gig Economy
Beginning July 1, 2017, for Uber drivers, federal and/or provincial taxes are added to fares when clients book a ride. Thus, drivers must register for a GST/HST account within 30 days of their first trip. For drivers in Quebec, you must also have a GST number before you can begin providing services to clients.
The “Small Supplier” exception was forced to change upon the creation of Uber jobs. Before July 1, 2017, only drivers who made $30,000 per year or more had to charge and remit GST/HST. That said, because of Uber, Lyft, and other similar companies, the CRA implemented new rules. The CRA was forced to amend/change the GST/HST definition of “taxi business” in the Excise Tax Act.
So, Uber drivers must register for a GST/HST account, regardless of income. Uber drivers must also charge and collect GST/HST for all fares, report these amounts on their income tax return, and remit the GST/HST charged to the CRA.
In Quebec, Uber collects and remits QST and GST for drivers. In the rest of Canada, Uber collects GST/HST automatically from clients and transfers it to the drivers weekly. Thus, drivers must remit these amounts to the CRA on their own. Uber provides its drivers with their tax information in their “Uber profile”. Tax summaries are available in the app’s profile which provides information on total earnings and other tax information.
Deducting Business Expenses in the Gig Economy
Since drivers are independent business owners, most, if not all, money spent on deriving income from the ride-sharing services can be considered tax deductible expenses. The significant expense for drivers is the actual use of the vehicle. Uber drivers can deduct the actual expenses of operating a vehicle for business including gas, oil, insurance, maintenance, repairs, depreciation of the car or lease payments.
If your vehicle is used for ride-sharing purposes and personal transportation, then you should be careful only deduct the portion of your expenses that apply to business use. More importantly, whatever deduction you claim, it is imperative that you keep thorough records to support your claims. The CRA is always liable to scrutinize taxpayer return filings, so you should keep receipts, mileage logbooks, or any other documentation that support the expenses you are claiming as deductions.
If you have any questions about tax requirements for Uber drivers or the gig economy in Canada or any of its Provinces, please give us a call or set up a consultation online!
**Disclaimer
This article provides information of a general nature only. It does not provide legal advice nor can it or should it be relied upon. All tax situations are specific to their facts and will differ from the situations in this article. If you have specific legal questions you should consult a lawyer.
by Jeff KirshenWhat is HST in Canada?
The harmonized sales tax (“HST”) is a consumption tax in Canada and it combines the goods and services tax (“GST”) and provincial sales tax (“PST”) . It is most often used in provinces where both the federal goods and services tax and the regional provincial sales tax have been combined into a single value added sales tax. HST resulted from attempts by the federal government to pressure provinces to abandon their individual provincial sales tax systems in favour of a blended tax that they argued would improve the competitiveness of Canadian businesses across the country.
Due to opposition from some provinces, the HST has not been universally implemented, and some provinces still charge and administer their own provincial taxes in addition to GST.
Where does HST apply in Canada?
The HST is in effect in five of the 10 Canadian provinces. These include New Brunswick, Newfoundland and Labrador, Nova Scotia, Ontario and Prince Edward Island. HST is collected by the Canada Revenue Agency (“CRA”). Once collected, the CRA remits the appropriate amounts to the participating provinces.
HST may differ across the five provinces mentioned above, as each province establishes its own PST rates within the HST calculation. If the province does not enact HST collection, the CRA will only collect 5% GST.
Businesses and the HST
Businesses that operate in any of the provinces that charge HST have the responsibility to charge, collect and remit HST as required by the tax provisions. Similar to exceptions for GST, there is a “Small Supplier” exception for businesses that charge HST in the appropriate provinces. If a small business makes less than $30,000.00 annually, they are not required to register for GST/HST. That said, businesses should consider registering for GST/HST regardless because it allows them to claim Input Tax Credits on the goods and services they consume during the course of conducting their business. Small business owners that are eligible for exception should weight the pros and cons of registering for GST/HST before deciding not to.
If businesses are selling goods and services out-of-province or out-of-country, they need to ensure they are charging the appropriate tax. Due to the different tax regimes amongst the provinces, this can prove to be somewhat complicated at times. The main rule is that businesses must charge either HST or GST/PST according to the destinations provincial or territorial taxation rates. For example, if the business resides in Nova Scotia, but they are shipping the goods to Ontario, they would charge an HST rate of 13% instead of 15%. If the business resides in Saskatchewan, but they are shipping goods to Alberta, then they would charge 5% GST and no PST.
Important to note, HST/GST/PST does not apply to sales of goods and services to jurisdictions outside of Canada. Interestingly, this rule applies to Canadian businesses that have their destination address outside of Canada.
Canada HST Rates
For a full breakdown of GST/HST rates in Canada and its provinces, please click here.
Finally, as a side note, the federal, and some provincial, governments issued a GST/HST credit to help compensate low-income individuals who are negatively affected by the GST/HST. Eligibility for the GST/HST credit is determined from the previous year’s tax return. If a taxpayer is eligible, they receive a tax-free quarterly payment intended to offset all or part of the GST/HST paid in the previous taxation year.
If you have any questions about HST in Canada or any of its Provinces, or if you have questions regarding setting up your business’ GST/HST remittance structure, please give us a call or set up a consultation online!
**Disclaimer
This article provides information of a general nature only. It does not provide legal advice nor can it or should it be relied upon. All tax situations are specific to their facts and will differ from the situations in this article. If you have specific legal questions you should consult a lawyer.
by Jeff KirshenUber Drivers and Canadian Income Tax
Uber drivers are considered self-employed in Canada, otherwise known as an independent contractor. As such, Uber drivers must keep records of the money they receive from Uber, and all of their expenses so that they may prepare and file proper income tax returns each year. Because Uber drivers are independent contractors, they will not be issued a T4 slip.
When preparing and filing their tax returns, Uber drivers must complete a T2125. This form is known as a statement of business activities. It lists the income earned, and breaks down all of the expenses incurred in that year.
What Documentation will I need to Complete my Income Tax Return?
To complete your return, you will need to gather information with respect to your income, your expenses, and mileage driven. Furthermore, you will also require:
- Your Annual Tax Summary from Uber (found at: partners.uber.com);
- Receipts, bills and statements for all tax deductible expenses;
- Your vehicle mileage from the beginning of the year, the end of the year, and separated between personal and business kilometres driven;
- Your Social Insurance Number; and
- Any other tax documents and slips related to any other employment you may have.
What Expenses may I deduct?
You are able to deduct certain business expenses from your income to lower the overall amount of tax you will pay. Some examples include:
- Mileage;
- Maintenance expenses (gas, oil, windshield washer fluid, new tires, tune-ups, etc.);
- Car washes;
- Vehicle insurance;
- Transponder for toll roads, tolls or parking costs;
- Cell phone expenses;
- Uber booking fees;
- Freebies for riders (water, candy, etc.);
- Cell phone mounts;
- Dash-cams;
- Phone accessories (chargers, auxiliary cords and hands free headsets);
- Car loan interest; and
- Accountant or bookkeeping fees.
When are my Tax Returns Due?
Self-employed persons must file their returns by June 15 of each year.
I Filed my Taxes but Cannot afford to Pay CRA the Money I Owe
If you are unable to pay the taxes you owe, you are still better off filing the tax return rather than holding onto it. If you do not file, you will be hit with penalties, and then interest will be charged on the original amount you owe plus the penalties. Once you have filed your return, the CRA will expect you to pay the balance in full. If you cannot, the CRA will expect you to enter into a payment plan where you are likely paying an amount monthly towards your tax bill. If you are having trouble negotiating a collections repayment plan, call us today because we can help.
Uber drivers are currently being targeted by the Canada Revenue Agency because recently, the CRA received a vast amount of information from Uber. The information shows amounts paid to independent contractors, which the CRA then matches up to ensure the Uber driver reported the correct amount of income. If the numbers do not match up, an audit is commenced. If you are being audited, or need some assistance with your taxes, call us today!
**Disclaimer
This article provides information of a general nature only. It does not provide legal advice nor can it or should it be relied upon. All tax situations are specific to their facts and will differ from the situations in this article. If you have specific legal questions you should consult a lawyer.
by Jeff KirshenWhat is HST in Ontario?
HST stands for “harmonized sales tax”. A harmonized sales tax is otherwise known as a consumption tax, which is a tax levied on spending (think of goods and services). Typically, this tax is used in provinces where both the federal goods and services tax (GST) and the regional provincial sales tax (PST) are combined to become a single “value added” sales tax.
What is HST in Ontario?
In Ontario, the current rate of HST is 13%.
What Goods and Services does HST apply to in Ontario?
The following are some examples of taxable supplies:
- Sales of new housing;
- Sales and rentals of commercial real property;
- Sales and leases of automobiles;
- Car repairs;
- Clothing and footwear;
- Legal and accounting services; and
- Hotel accommodation.
Zero-Rated Supplies
Some supplies are considered to be zero-rated – meaning that HST applies at a rate of 0%. Therefore, while GST/HST wouldn’t be charged on these supplies, you would still be able to potentially claim input tax credits for the GST/HST paid or payable on either services or property acquired in order to provide these supplies.
The following are some examples of zero-rated supplies:
- Basic groceries, such as milk, bread, and vegetables;
- Most farm livestock;
- Most fishery products, such as fish for human consumption;
- Prescription drugs and drug-dispensing services;
- Certain medical devices, such as hearing aids and artificial teeth; and
- Feminine hygiene products.
For more examples, please see the CRA website found here.
Are there Exemptions to HST in Ontario?
There are various items that are typically exempt from HST. This means that no GST/HST applies to them. While this aspect is similar to a zero-rated supply, the difference with these items is that you are generally not entitled to claim input tax credits on property and services acquired to provide these supplies.
Below are some examples of exempt supplies:
- Resale of an existing home (renovations are taxable, however);
- Books;
- Household goods, such as children’s clothing and shoes, car seats, diapers;
- Legal aid services;
- Child care services, where the primary purpose is to provide care and supervision to children 14 years of age or under for periods of less than 24 hours per day;
- Long-term rentals of residential accommodation (of one month or more) and residential condominium fees;
- Feminine hygiene products;
- Music lessons; and
- Many educational services, such as tutoring services made to an individual in a course that follows a curriculum designated by a school authority.
For more information on the harmonized sales tax and how it might impact your spending and potential input tax credits that you may be eligible for, contact us for more information!
**Disclaimer
This article provides information of a general nature only. It does not provide legal advice nor can it or should it be relied upon. All tax situations are specific to their facts and will differ from the situations in this article. If you have specific legal questions you should consult a lawyer.
by Jeff KirshenWhat is the Marginal Tax Rate?
The marginal tax rate is the percentage of tax you will pay, which is based on the amount of income you earn. The more money you make, the more tax you are expected to pay. This approach is otherwise known as the marginal tax rate. More specifically, the marginal tax rate, is the amount of tax incurred on each additional dollar of income.
How is the Marginal Tax Rate Applied?
Under a marginal tax rate, taxpayers are divided into tax brackets, which determine the particular rate of tax applied to the taxable income. The marginal tax bracket where a taxpayer’s income applies to does not determine how the entire income is taxed. Instead, income is taxed on a progressive system. This means the following for 2019:
| Taxable Income | Federal Income Tax Rate |
| $47,630 and below | 15% |
| $47,630 up to $95,259 | 20.5% |
| $95,259 up to $147,667 | 26% |
| $147,667 to $210,371 | 29% |
| Over $210,371 | 33% |
Note: In order to determine the total tax rate paid in your province, you must combine the marginal tax rates for your province and the federal tax rate.
Example:
You are a resident in Ontario, and your gross taxable income is $50,000. To calculate your federal tax rate, you would:
- Pay 15% on the amount up to $47,630. This would equal $7,144.50; and
- Pay 20.5% on the amount between $47,630 and $95,259. This would equal $485.85.
This would make your total federal tax $7,630.35. Next, you would have to add this figure to the provincial tax rate. The Ontario rates for 2019 are as follows:
| Taxable Income | Ontario Income Tax Rate |
| $43,906 and below | 5.05% |
| $43,906 up to $87,813 | 9.15% |
| $87,813 up to $150,000 | 11.16% |
| $150,000 up to $220,000 | 12.16% |
| Over $220,000 | 13.16% |
Following the same principles from above, your total provincial tax payable would equal $277.50. Taken together, on your $50,000 gross taxable income, you will pay $7,907.84 in tax.
Tax Planning and the Marginal Tax Rate
If you know the tax bracket that you are in, this will allow you to make well-informed decisions on when, how, and which deductions you are able to claim. It can help determine whether you or your spouse should claim certain amounts or credits, whether it is an appropriate time to withdraw from your retirement savings accounts, and even whether it might be worth making that extra dollar from a promotion.
If you wish to take full advantage of the tax bracket you are in, and ensure that you do not miss out on, or sacrifice any benefits you are eligible for, contact us and we would be happy to help you strategize and determine the best course of action moving forward!
**Disclaimer
This article provides information of a general nature only. It does not provide legal advice nor can it or should it be relied upon. All tax situations are specific to their facts and will differ from the situations in this article. If you have specific legal questions you should consult a lawyer.
by Jeff KirshenCRA Penalties and Interest
The Canada Revenue Agency (“CRA”) can charge interest and penalties for a variety of reasons. Perhaps more worrisome is the alarming rate that penalties and interest can accrue at thereafter. Interest and penalties can easily accumulate to amounts greater than the taxpayer’s original balance owing. Below is a breakdown of common penalties and interest that the CRA may charge to unpaid balances.
CRA Arrears Interest
Where the taxpayer has a balance with the CRA, interest begins accruing on that balance from the filing due date. Interest is compounded daily at the CRA’s prescribed interest rate. The interest rate changes every three months; most recently the interest rate charged on overdue taxes is 6%. In addition to any tax liabilities outstanding, interest is also charged on any penalties on the taxpayer’s account.
CRA Late Filing Penalties
The CRA charges Late Filing Penalties when a taxpayer owes taxes and files his or her income tax return late. Currently, the CRA charges 5% of the balance owing + 1% of the balance owing for each month late to a maximum of 12 months.
Repeated late filing can lead to a penalty increase of up to 10% of the balance owing + 2% of the balance owing for each month late to a maximum of 20 months.
CRA Repeated Failure to Report Income Penalty
This penalty occurs where a taxpayer fails to declare income on a tax return, and also failed to report income in any of the previous three years’ returns.
A “Failure to Deduct” penalty of 10% can be applied to the amount of CPP, EI or income tax that you did not deduct. If assessed with this penalty more than once in a calendar year, the CRA will apply a 20% penalty for second or later failures due to gross negligence.
CRA False Statements or Omissions Penalties
The CRA can also charge penalties where it believes that false statements or omissions occurred. Subsection 163(2), “False Statements or Omissions”, enables the CRA to charge a penalty of 50% of the unpaid tax on the omitted income.
CRA Penalties on Trust Funds: GST/HST and Payroll Accounts
CRA imposes other penalties on the failure to remit and pay off trust funds. More information about penalties applicable to GST/HST accounts can be found here.
Where late remitting of a business’ payroll account occurs, the CRA can impose late remitting penalties. More information regarding late remitting penalties can be found here.
What Can Be Done About CRA Penalties and Interest?
It is best to file and pay your taxes on time. However, the reality is that this ideal standard is not always possible. In such cases, there are options to seek relief from unfair charges. One such avenue is through the CRA’s Taxpayer Relief Division. We previously wrote on the topic of Taxpayer Relief here.
While each taxpayer has the right to request taxpayer relief, the CRA’s decision to grant the relief is discretionary. Therefore, it is especially important to make a strong argument and clearly state the reasons you should be granted taxpayer relief. If you require assistance with your taxpayer relief application, contact a tax lawyer at Rosen Kirshen Tax Law today!
**Disclaimer
This article provides information of a general nature only. It does not provide legal advice nor can it or should it be relied upon. All tax situations are specific to their facts and will differ from the situations in this article. If you have specific legal questions you should consult a lawyer.