Avoid CRA Penalties: Know The Canada Revenue Agency (CRA) Penalties
The Canada Revenue Agency (CRA) imposes various penalties and interest charges to encourage timely and accurate tax filings. For the 2024 tax year, key penalties include:
Late Filing Penalty: If you miss the tax deadline with a balance owing, the CRA charges 5% of the amount due, plus 1% per month, up to 12 months. Repeat late filings or failure to comply with a demand to file may result in higher penalties.
Interest on Unpaid Taxes: Starting May 1, 2025, the CRA charges daily compound interest on unpaid 2024 taxes. Rates are set quarterly; in early 2024, the rate was 10%. You will be charged an additional 2% for each full month that you file after the due date, to a maximum of 20 months.
Repeated Failure to Report Income: Failing to report income twice in four years may result in federal and provincial penalties, each at 10% of the unreported amount.
False Statements/Omissions: Knowingly misstating or omitting information may result in a penalty of $100 or 50% of the understated tax/overstated credits, whichever is higher.
SMART TIP: To avoid CRA penalties and manage tax owing, file your tax return on time, report all income accurately, and pay taxes owed by the due date. If you can't pay in full, contact the CRA to arrange a payment plan and reduce interest charges. Learn more here.
4 Steps to Manage Tax Owing
Payment Slip
After filing your taxes, you will typically receive a Notice of Assessment (NOA) from the CRA, which will indicate the amount you owe. Your tax preparer may also provide a payment slip if they are handling your taxes.
Set Up a Payment Arrangement with the CRA
If you're unable to pay the full amount by April 30th, you can contact the CRA to discuss setting up a payment plan. The CRA offers monthly installment options, but interest will still accrue on the outstanding balance. You can apply for a payment plan through the CRA's My Account online portal or by calling the CRA directly.
Make Partial Payments
If you cannot pay the full amount, making partial payments is a good strategy. Even partial payments will reduce the balance on which interest is charged and show the CRA that you're making an effort to resolve the debt.
Adjust Future Withholdings or Installments to Avoid Penalties
To avoid owing taxes in the future, it's wise to review your tax withholdings from your paycheck or adjust your installment payments (if you're self-employed). ALERT: Complete your TD1 forms that your employers ask you to fill out correctly. "Read page 2 before filling out this form. Your employer or payer will use this form to determine the amount of your tax deductions." Ensure your withholding amount is aligned with your total income and tax obligations so you're not caught off guard at the end of the year.
How to Pay the CRA
By April 30th: You need to pay any balance owing to the CRA by this date to avoid interest or penalties.
Payment Methods:
Online: You can pay through your bank’s online payment system by selecting the "CRA" as a payee.
At the Bank: You can also make payments at your bank or financial institution, using the payment slip you received with your NOA.
SMART TIP: Ensure you have your paper stamped or get a receipt or copy the transaction reference # from the screen to the slip and store it with your taxes as proof.
For more details on payment methods and options, you can visit the CRA's official payment page here.
Key Strategies to Avoid CRA Penalties and Manage Tax Owing
Examine Your Tax Bill
Review your Total Annual Income from all sources.
Check your Notice of Assessment (NOA) carefully to ensure the amount owed is accurate.
Double-check your deductions and credits to make sure you're not overpaying, and make sure all eligible expenses have been claimed.
Consider a Financial Professional
If you're unsure how to handle the tax bill or want help with strategies to “save to pay” working with a financial planner, such as Fenske Financial Coaching, or a tax advisor can provide peace of mind.
A professional can help you create a payment plan and offer guidance on reducing the overall tax burden in your future.
Taking proactive steps now can help you manage your tax situation without the added stress and keep you on the right track for future tax filings. Book a session with Fenske Financial Coaching here to take charge of your finances!
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