Transcript

Host: Welcome to the segment called Penalties and interest part of the Starting Your Business video.

I'm your host Janice Novak.

With me is Diane Rice who will share with us, in this segment, information that she has obtained from the CRA to provide you with the details on penalties and interest.

Welcome Diane.

Subject matter expert: Thank you Janice.

Host: What does a new business need to know about the consequences of not meeting the filing and/ or remitting obligations of the CRA?

Subject matter expert: As a new business, it's important that you file any required returns and remit payments on time. Penalties may apply if you do not, and interest is charged on unpaid taxes and penalties. Filing and remitting correctly and on time helps you avoid penalties and interest. It ensures that your business pays only the tax amounts required.

Host: What types of penalties are there?

Subject matter expert: Well, if as a sole proprietor or a partner in a partnership you owe tax and do not file an Income Tax and Benefit Return on time, the CRA will charge a late-filing penalty. The penalty is 5% of your balance owing, plus 1% of your balance owing for each full month that your return is late, to a maximum of 12 months.

If you have repeatedly late-filed, the penalties can be more substantial.

For more information go to the CRA's Late-filing penalty (Individuals) webpage. The link is included in the Related links for this segment.

The CRA may waive or cancel this penalty as well as any interest that may apply if you file your return late because of circumstances beyond your control. For more information go to the CRA's webpage on taxpayer relief. The links are included in the Related links in this segment.

Host: What if a business owner fails to report all of their income when calculating it for tax purposes?

Subject matter expert: If as a business owner you fail to report all of your income, you may be subject to a penalty of 10% of the amount you failed to report after your first omission.

A different penalty may apply if you knowingly, or under circumstances amounting to gross negligence, participate in making a false statement or an omission on your T1 return. This penalty is 50% of the tax attributable to the omission or the false statement.

However, if you voluntarily tell the CRA about an amount you failed to report and/or an overstatement of credits, the CRA may waive this penalty.

For more information go to the CRA's webpage on Voluntary Disclosures. The link is included in the Related links in this segment.

Host: Are there any penalties for employers?

Subject matter expert: For employers, there are different penalties. For example, there's a penalty for not deducting, a penalty for not remitting, and a penalty for not filing your information returns among others. For a complete list of employer penalties, you should go to Penalties (Payroll) The link is included in the Related links for this segment.

Host: Are there any penalties for GST/HST registrants?

Subject matter expert: Yes, a penalty will apply to any return you file late unless there is a $0 amount owing or the CRA owes you a refund on that return.

For more information on how the GST/HST penalties are calculated go to the CRA's webpage on penalties and interest.

The link is included in the Related links in this segment.

Host: Can you give me some examples of other GST/HST penalties?

Subject matter expert: If you receive a demand to file a return and do not do so, a penalty of $250 will be charged. There are also penalties for failing to accurately report information. There are additional penalties for amounts and information that must be reported on an electronically filed return and are not included, are under/over reported, or are reported incorrectly. Some of these amounts include:

• Recaptured input tax credits
• Grand-parented sales of housing in some provinces
• The transitional tax adjustment, and
• Provincial transitional new housing rebates

For more information go to the CRA's webpage on penalties for GST/HST registrants. More information is also available in the GST/HST Memoranda Series, 16.2 Penalties and Interest. The links are included in the Related links for this segment.

Host: What about interest charges?

Subject matter expert: Interest equal to the basic rate plus 4% will be charged on an overdue amount. The basic rate is based on the rate charged on 90 day Treasury bills, adjusted quarterly, and rounded up to the nearest whole percentage. Interest is charged on:

• any overdue balance owing on a return;
• late or insufficient instalment payments; and
• any other overdue GST/HST amount that you have to remit to the Receiver General.

Host: Any penalties for corporations?

Subject matter expert: Yes, Corporations have their own types of penalties, to find out more, go to Avoid penalties (Corporations). The link is included in the Related links for this segment.

Host: You've given us a brief summary of the penalties—and you also mentioned interest. How does that apply?

Subject matter expert: Well, the CRA will charge interest if you make late or insufficient payments.

This interest is called instalment interest or arrears interest, depending on the debt.

The interest rate is determined every three months, and compounded daily, in accordance with the prescribed interest rate.

In addition to interest on taxes, the CRA will charge you interest on the penalties starting the day after your return is due.

Go to www.cra.gc.ca/interestrates to find out about the different interest rates.

Host: For sole proprietorships and partnerships, is there anything in particular about penalties and interest that they should keep in mind?

Subject matter expert: Remember that if you are a sole proprietor or a partner reporting self-employment income, your return is due on June 15^th, but any tax owing is due on April 30^th and can be subject to interest charges if not paid on time.

Host: Thank you Diane.

This concludes the segment on penalties and interest, part of the CRA's Starting Your Business video. Thank you for watching.