If you’re running a business in Grande Prairie or earning personal income in Canada, staying on top of your taxes is key to avoiding unwanted penalties and interest from the CRA. In this blog, we provide an overview on what these charges are, when they happen, and how to avoid them to save you or your business time and money.
What Are CRA Penalties and Interest?
The Canada Revenue Agency (CRA) charges penalties when tax returns are late, incorrect, or unpaid. The interest portion is calculated daily on the amount of unpaid taxes, which due to compounding can add up quickly if not resolved.
Common areas where Grande Prairie business owners see these charges include:
- GST/HST returns
- Payroll remittances
- Corporate income tax (T2)
When Do CRA Charges Apply?
There are three common instances where we see CRA penalties and interest charged:
- Late Filing: Typically this results in a penalty based on a percentage of tax owed.
- Late Payment: Penalties may apply to those who file on time but fail to pay any taxes owed by the payment deadline.
- Incorrect Filings: Errors or missing info can lead to additional fines. This is most common with GST and payroll remittances.
How does CRA Calculate the Penalty and Interest?
Interest on any taxes owed and penalties accumulate daily interest at a floating rate slightly higher than the Bank of Canada rate. Common penalty rates include:
- Corporate tax: 5% of unpaid taxes + 1% per month.
- GST/HST: 1% + 0.25% for each full month it’s overdue
- Payroll: Starts at 3% but can jump to 10–20% for repeat late filings.
How to Avoid CRA Penalties & Interest
Stay ahead of each and every CRA account deadline.
- T2 or business returns are typically due 6 months after the businesses fiscal year-end however, taxes owed are due only 2 to 3 months after year-end.
- GST/HST accounts are usually filed quarterly or annually.
- Most employers are required to submit payroll remittances by the 15th of the month following (April withholdings and employer portions are due by May 15).
Use a Bookkeeper or Accountant
Leave the scheduling and date tracking to the professions to help ensure your filings are accurate and on time. Hiring the right professional can save you time, money and stress.
Make Partial Payments
If you’re worried about paying in full at the conclusion of the year, consider making smaller payments throughout the year to build up a credit on your CRA account. If you fail to preplan and don’t have the cash flow to satisfy all CRA balances, pay what you can to reduce the principal balance owed that will accumulate interest.
Already Have a CRA Penalty?
If you’ve received the unwanted notice that a penalty has been applied on your account, carefully review your notice from the CRA and confirm details match your records. If the charges are related to a reason beyond your control (illness, natural disaster) you can apply for Taxpayer Relief by filing Form RC4288.
How do I Pay CRA Penalties or Interest?
The CRA offers different options for submitting payments for penalties and interest:
- Through your CRA profile online
- Using your Online Banking and selecting the CRA account as a payee
- As a Pre-Authorized Debit
- By mail with a cheque
- In-person at a financial institution
CRA penalties and interest can be avoidable with a bit of planning. Grande Prairie business owners can save money (and stress) by staying organized, knowing their deadlines, and reaching out for help when needed.
Need tax planning support or help dealing with CRA charges? Contact McNabb Lucuk LLP today—we’re here to help Grande Prairie businesses and individual tax payers.