Filing Canadian Corporate Tax and HST Returns on Time

Just File Your Canadian Tax Return on Time!

During the past year, I have noticed that Canadian Revenue Agency (CRA) is putting more pressure on Canadian corporations to file their corporate tax and HST returns on time.  The tactics being used by CRA include constant reminder notices being sent soon after the filing deadline has passed as well as withholding HST and/or corporate tax refunds until all of the business’ filings are current.

As a Vancouver chartered accountant, I don’t mind the pressure CRA is putting on these corporate taxpayers.  It makes my work flow more predictable and smooth because I know most clients will bring their information in to our office to have their taxes filed soon after the year end as opposed to waiting until they are ready to be filed.

Filing late and not paying CRA by the required deadlines translates into an expensive habit for corporations.

Interest charged on late installments and balances owing is 4% plus the prescribed rate of interest for the quarter which is based on the yield on the Government of Canada treasury bill. For the first 2 calendar quarters of 2012, the applicable interest rate was 5% on balances owing and late installments.

Late Filing Penalties by CRA

On top of all of this, there is an added expense in the form of a late filing penalty. For the first late filing offence, the penalty is 5% of the unpaid tax at the filing due date, plus 1% for each complete month (part months do not count) and the unpaid tax is outstanding up to a maximum of 12 months. (This penalty is in addition to interest on the amounts due discussed above). If there are no taxes owed on the due date, or if the taxpayer is entitled to a refund, the late filing penalty would be nil.

If the taxpayer has been charged a late filing penalty in any of the 3 preceding taxation years, the penalty is increased to 10% of the unpaid tax at the filing due date, plus 2% per month up to a maximum of 20 months.

Just like the interest on late installments and unpaid balances, penalties are not deductible for tax purposes.

Due to their punitive nature and tax treatment, a Canadian business corporation should make every effort to file their annual tax return within  six months after year-end, even if the full amount of taxes owing cannot be paid by that time. However, all business taxes are due within two months of the year end and for privately held Canadian corporations earning less than $500,000 in taxable income, all taxes are due three months after the year end.

Vancouver Chartered Accountants Tax Tip

Six months is plenty of time to file.  If you are in a cash crunch, file your corporate taxes on time and arrange for a line of credit. Avoid the late filing penalty and then deduct the interest on the line of credit.

If you have any questions or want to know more about how we can help you, contact us.

Disclaimer: All Rights Reserved for Mew & Company. This blog post is designed to provide information for personal use only. Please consult your professional tax advisor for further information. Mew & Company is not responsible for any legal disputes resulting form the content of this blog post.