What are Income Tax Penalties?

Income tax is a very common term which globally. As the name suggests, income tax is the tariff levied on the income of both individuals and business organization. Quite obviously, the same set of rules will not apply for both. Each has its own rules and laws. It is the responsibility of every Canadian to pay income taxes to the government properly and punctually.

Failure to pay income tax on time may result to tax non-compliance, which is defined by Wikipedia as the “range of activities that are unfavourable to a state's tax system. These include tax avoidance, which refers to reducing taxes by legal means, and tax evasion which refers to the criminal non-payment of tax liabilities. Groups that do not comply with taxes include tax protesters and tax resisters. Tax protesters attempt not to pay tax believing that they have discovered interpretations of the law that show that they are not subject to being taxed, whilst tax resisters refuse to pay a tax for conscientious reasons. Tax resisters typically do not take the position that the tax laws are themselves illegal or do not apply to them and they are more concerned with not paying for particular government policies that they oppose. Because taxation is often perceived as onerous, governments have always struggled with tax noncompliance since the beginning of civilization.”

What are Interests?

The Canada Revenue Agency has issued useful guidelines regarding interests and penalties that can be of help to Canadian taxpayers.

The CRA states that If you have a balance owing for 2011, we charge compound daily interest starting May 1, 2012, on any unpaid amounts owing for 2011. This includes any balance owing if we reassess your return. In addition, we will charge you interest on the penalties starting the day after your return is due. The rate of interest we charge can change every three months. If you have amounts owing from previous years, we will continue to charge compound daily interest on those amounts. Payments you make are first applied to amounts owing from previous years. Interest on unpaid taxes may be waived or cancelled under certain circumstances.

What are Penalties?

For late-filing penalties, the CRA explains that if taxpayers who owe tax for 2011 and do not file returns for 2011 on time will be charged you a late-filing penalty. The penalty is 5% of your 2011 balance owing, plus 1% of the balance for each full month that the return is late up to a maximum of 12 months. If the CRA charges a late-filing penalty on returns for 2008, 2009 or 2010, late-filing penalty may be 10% of the 2011 balance plus 2% of the 2011 balance for each full month that the return is late up to a maximum of 20 months.

The CRA may waive or cancel this penalty as well as any interest that may apply if you file your return late because of circumstances beyond your control. If this happens, complete Form RC4288, Request for Taxpayer Relief, and mail it to the intake centre responsible for your province or territory of residence. Only requests relating to tax years ending in any of the 10 calendar years before the year in which you make the request will be considered.

What are the Cancellation and Waiver of Interest and Penalties?

There may be situations wherein you have been prevented from paying your income tax on time. In such cases, it is possible to make an appeal in Canada. What you will have to do is tell them the circumstances which prevented you from paying your income tax on time and there is a possibility that you might get a waiver in the penalty you will have to pay to the CRA.

The Circular provides information and guidelines for taxpayers and employers regarding certain legislation contained in Bill C-18 which gives discretion to cancel or waive all or a portion of any interest or penalties payable, and it applies to taxation years back to 1985. It outlines guidelines on how the Canada Revenue Agency would apply the legislation if taxpayers or employers make a request to cancel or waive interest and penalties for years dating back to 1985. The information required is also described for such requests to be considered.

Penalties and interest may be waived or cancelled in whole or in part where they result in circumstances beyond a taxpayer's or employer's control. There are extraordinary circumstances which could have prevented a taxpayer from making a payment when due, or otherwise complying with the Income Tax Act:
• natural or human-made disasters such as flood or fire
• civil disturbances or disruptions in services such as a postal strike
• a serious illness or accident, or
• serious emotional or mental distress such as , death in the immediate family.

Responsibility of Canadian Taxpayers

The interest rates that the government of Canada charges its citizens for not paying their taxes on time can change as often as every three months. It is the duty of every citizen to make sure that they pay their taxes on time. Only then can the country prosper. It is therefore important to make sure that you always pay your taxes on time and set an example to other Canadians in your locality.


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