At least once or twice a month, I receive calls from small business owners asking if I am able to help them out because they have been getting letters and phone calls from the Canadian Revenue Agency (CRA) regarding unfiled returns.
My typical response to these calls is “Let me make a guess… You have not filed your HST/GST, corporate taxes and/or source (payroll) deductions and are behind? Now CRA is starting to call?”
This occurs in many situations, so I start by explaining to small business owners that they are not the only small business owner in this predicament. In fact, CRA banks on it, making millions of dollars each year in interest and penalties. Meanwhile, for you, being behind is causing a tremendous amount of stress, sleepless nights, and in some cases, even relationship strain.
If this describes your business and personal life, please do not feel embarrassed as we see numerous business owners just like yourself each year. With that said, the biggest issue in this scenario is that whether you have filed or not, interest and penalties continue to pile up.
CRA is notorious for issuing irrational assessments, making up numbers and demanding payment. They are not even subtle about it! They will garnish your bank accounts, your clients, and make your life agonising.
The best thing to do is to get current on your records, make the proper filings, and then talk to CRA about a payment plan. As for interest and penalties, here is what you are facing (and they compound DAILY):
Corporate Tax:
- 5% of the tax balance owing on the filing deadline,plus 1% of the tax balance owing for each additional month that you are late to a maximum of 12 months.
- If you receive a demand to file notice, the penalty increases to an alarming 10% plus 2% for each month that your tax balance payment is late to a maximum of 20 months.
GST / HST:
- 1% of the tax balance owing PLUS 25% of the tax balance owing multiplied by the number of months your payment is overdue to a maximum of 12 months.
- If you receive a demand to file notice, an additional $250 is added.
- Arrears interest is calculated at 5% per annum.
Payroll Deductions:
- 3% of the tax balance owing if your remittance is 1 to 3 days late.
- 5% of the tax balance owing if your remittance is 4 or 5 days late.
- 7% of the tax balance owing if your remittance is 6 or 7 days late.
- 10% of the tax balance owing if your remittance is more than 7 days late.
- Arrears interest is calculated at 5% per annum.
- If you are assessed a penalty more than once in a year, a 20% late remitting penalty will be applied to all subsequent late remittances.
As you can see, Payroll Deductions are the most sensitive taxes and you should do everything possible to remit these on time. In addition to late penalties and interest, repeated infractions will likely lead to Trust Audits (GST / Payroll) and sometimes even Corporate Tax Audits, although not as often.
Do you really want CRA at your door auditing your records?
Most importantly, you might want to consider Director’s Liability. Did you know that if you do not remit the payroll deductions and/or GST, that you can be held PERSONALLY LIABLE for the amounts owing? CRA can and will lien your home, vehicles and your other personal assets to secure their interests.
Perhaps now is time to get your business affairs in order. CRA does not care that you have other financial obligations. At the end of the day, the tax money is theirs, not yours, and they will not tolerate you using their money to run your business. It is that simple!
We see situations like these every day. It’s time to gather your documents, make an appointment to see Strategic Business Management Inc. and get ahead of CRA before they seize your bank accounts or worse. We can help educate you further and sort through CRA complications.