Managing a business is a fulfilling accomplishment, but important things may be overlooked during the more hectic moments. One mistake that can occur is the onset of penalties related to not paying taxes on time. While this circumstance is not insurmountable, there are still costly repercussions. Keep in mind these ramifications of not paying taxes on time, and learn what to do to avoid the situation altogether.

Penalties for Filing Taxes Late in Canada

The Canada Revenue Agency (CRA) charges a penalty of 5% of the tax owed plus an additional 1% per month as of 2017. For example, if you owe $5,000 in income tax and you file three months late, you face an 8% penalty ($400). To discourage late payments, the CRA doubles the penalty if you have filed late in the last three years. You also have to pay interest on the tax owed. The CRA may also penalize an entity for non-compliance, which means there’s a $250 fee if a business does not file a return in such an extended period of time that it can be considered as a refusal to do so.

How to Avoid a Late Filing Penalty

Even if you don’t have the funds to pay your income tax, you should still try to file on time so you can avoid the late filing penalties, and in that way, you only have to deal with interest. If your return is already late, the CRA advises you to use Form RC4288 to ask the CRA to waive penalties and interest. The CRA grants waivers to taxpayers who can’t file on time due to exceptional circumstances such as disasters, civil disturbances, or severe emotional distress.

Avoiding Penalties Due to Missing Forms

If you don’t have all the forms you need, consider filling out your return and attaching a note detailing which forms you’re missing and the steps you have taken to get them. For example, if you’re an independent contractor and you’re missing a T4A slip from a payer, you may want to take these steps instead of filing late. Filing your income tax return late can be extremely costly. To avoid fees and make tax time easier, try to keep your books well-maintained throughout the year.

Avoiding Penalties Due to CRA Delays

The CRA may waive penalties that result primarily from its own actions, including:

• Requests for additional information due to an incorrect of incomplete form
• Processing delays
• Processing errors
• Audits, appeals, reviews, or objections

Thankfully, the CRA allows application for penalty relief for up to 10 prior tax years. The agency also considers how quickly you respond to the issue as well as your compliance history. There’s also the opportunity to request a second review and even a judicial review if you don’t agree with the results.

Maintaining a successful business is now more possible than ever. Quickbooks Online can help you maximize your tax deductions. Keep more of what you earn today.