Behind on Taxes in Canada
Are you behind on your taxes? Either haven’t filed in more than a year of stuck with an unexpectedly large tax bill? If so, this article provides information that you need to know….
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- Who is this article for?
- Late tax penalties in Canada
- How to minimize CRA late fees and penalties
- How to transfer your debt to save money
- How can I find out more?
This is especially relevant to self-employed persons, as they don’t have estimated taxes automatically deducted throughout the year.CRA’s website)
Late filing penalties are levied in their entirety immediately after the deadline (April 10th) is passed:
- If you have not filed your taxes late in the last 3 years, the fee is 5% of the balance owing.
- If you have filed your taxes late in the last three years, the fee is 10% of the balance owing.
Interest is compounded daily on the balance owing:
- If you have not filed your taxes late in the last 3 years, the interest is 1% of the balance owing every month for 12 months
- If you have filed your taxes late in the last three years, the interest rate is 2% of the balance owing for 20 months
- Interest is charged on penalties as well, compounding the effect of the 5% or 10% penalty
The compounding effect of the interest rate is substantial. The chart below provides an example of how much you could pay in penalties using a $100,000 balance:
- Let’s say you owe $100,000. A sizable, but by no means unheard of, sum
- If this is your first late filing, you are charged 5% ($5,000) right away. If you pay the balance immediately, then that’s all you pay (Scenario A)
- If, however you do not pay right away, the interest starts accumulating. They charge 1% per month on the balance (including the penalty) for 12 months at most. The means the most you can pay is about $18,000 (18%) (Scenario C)
- Now let’s assume that you have had a late filing in the last 3 years. If that’s the case you will pay anywhere from $10,000 to $63,000 (63%) (Scenario B and D)
That 63% is admittedly an outlier and requires that you make no payments whatsoever for 20 months. That being said, it is best to avoid at all costs.
- The Voluntary Disclosure Program might allow you to waive all of the penalties, though you still owe the initial balance of course
- Taxpayer relief provisions might also allow you to reduce or remove penalties
- You can transfer your debt to a lower interest loan to save money
The complicating factor is that debt to CRA is a super-priority claim. This essentially means that CRA get first dibs on your assets and the bank has to get in line behind them. Banks don’t like being behind anybody. As a result, banks will not typically give you a mortgage if you are behind on your taxes.
This is where we come in.
We offer home equity loans for back taxes. Essentially, you take out a low interest loan from us and use it to pay off your taxes. Once your taxes are paid off, you can then qualify for a re-finance with your bank.
Want to know more? Book a call with one of our experts by clicking the link below:no-obligation application here. You are under no obligation to proceed, even after you fill out the application.
We realize that most people just want to find out a bit more information and don’t necessarily want to submit an application. If that’s you, just fill out some basic information here or schedule a phone call with an expert so we can assess your options.
And of course, if you have any questions, just give us a call or send us an email.