Income Tax Penalties

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Income tax Penalties

The consequences of income tax non-compliance can be quite costly and every effort should be made to minimize them. There are various penalties which fall into four groups

1.   Failure to File

2.   Failure to report income

3.   Failure to pay tax

4.   Third-Party Civil penalties

Failure to file

When a tax payer does not file when requested, it is not uncommon for CRA to complete a return on the taxpayer’s behalf and then send him the bill for the taxes owing. A penalty of 5% of the unpaid tax is imposed and an additional 1% for each month that the tax remains unpaid. Late or deficient payments are also subject to interest and penalties.

If the taxpayer fails a second time in the next three years then the penalty is 10% of unpaid taxes and 2% for each additional month to a maximum of 20 months

Failure to report

The CRA imposes an automatic penalty of 10 % of the unreported amounts if there has been unreported income in the three years prior.

Failure to pay taxes

The unpaid taxes will attract interest until the balance is paid in full. Where there is reluctance on the part of the taxpayer to pay, the government will take steps to recover the debt. This may include, garnishment of wages, freezing bank accounts, seizure of assets.

In most cases, however you can negotiate payment terms with the CRA. You can even get relief from the interest if you are experiencing financial hardship.

Third-party Civil penalties are aimed at professionals, such as tax preparers, who willingly and knowingly make false statements or induce the taxpayer to make false statements or omit relevant information.

Avoiding income tax penalties

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