It is a good idea to meet Monday's tax-filing deadline, even if you don't
have the cash to pay any taxes owing. If you are selfemployed in 2006, you have
a bit more time to file as your returns is due on June 15. But, any taxes owing
for 2006 must still be paid by Monday.
If you file your return late, there is an automatic 5% penalty on the amount
of tax unpaid, plus an additional 1% per month penalty on the amount due each
month the return is late, up to a maximum of 12%. Late filers are also subject
to arrears interest.
If it is not the first time you have filed late, and you have been assessed a
late-filing penalty in any of the prior three years, the penalties double to 10%
of the unpaid amount plus a 2% penalty for each late month to a maximum of 20
months. Fortunately, this higher penalty is only charged if you have also
received a formal demand to file from the Canada Revenue Agency.
However, if you fail to pay the required amount of tax owing on time, but
your return is filed on time, you will only be subject to arrears interest. The
interest, which is not tax deductible, is compounded daily and charged at the CRA's prescribed interest rate, which is
currently 9%.
What if you are owed a refund? It is still a good idea to file on time, just
in case your return is audited and reassessed by the CRA, turning what was
originally a tax refund into an amount owing. In that situation, late filing of
the return would attract the penalties and interest discussed above.
Don't have the cash to pay by Monday? The CRA may be willing to accept a
payment arrangement from you, but only after you demonstrate to them that you
have made a reasonable effort to try to obtain the cash by either borrowing or
rearranging your financial affairs.
To make such an arrangement, contact your local tax services office to
discuss an acceptable payment plan. Note, however, that daily compounded
interest will continue to accrue on any taxes owing, beginning May 1, until you
pay your balance in full.
Jamie Golombek, CA, CPA, CFP, CLU, TEP, is
vice-president, taxation and estate planning, at AIM Trimark Investments in
Toronto.
Jamie.Golombek@aimtrimark.com