Behind on Taxes?

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…. taxes in Canada

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Who is This Article For?

Everyone is more than welcome to read this of course, but those most likely to find it useful are individuals that have not filed taxes on time for one or more years or those that have a large tax bill due.

This is especially relevant to self-employed persons, as they don’t have estimated taxes automatically deducted throughout the year.

Late Tax Penalties in Canada

Late penalties levied by Canada Revenue Agency (CRA) fall into two categories interest and late-filing penalties (for more information, check out 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: CRA Penalties in Canada

  • 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.

How to Minimize Tax Fees and Late Penalties

If you have a sizable tax bill or you are expecting one, there are programs available to help you.

  • 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

How to Transfer Your Debt to Save Money

Normally, this is not a straight-forward process that banks generally can't help you with, but we take the worry out of it.

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:

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Want to Know More?

If you are interested in applying for a home equity loan, you can fill out a quick, online 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.