Understanding Taxes: Late Payment Penalties, Interest Charges

Are you someone who likes to procrastinate on filing your taxes? Well, in Canada, that can come with some not-so-fun consequences! While most Canadians file and pay their taxes on time, if you happen to overlook or miss the deadline for filing, you could be hit with additional penalties and interest charges.

In the case that April 30th falls on a weekend or a public holiday, the due date for your tax payment will be moved to the next business day after April 30th. Interest on your balance owing will begin to accrue on the second business day after the due date.

But don't worry, we've got you covered. In this blog, we'll break down exactly what you need to know about the CRA's penalties and interest charges for late tax payments and filing. From the late-filing penalty to the repeat offender penalty and more, we'll make sure you understand the ins and outs of late tax filing in Canada.

Penalty for filing your tax return late

In Canada, if you fail to file your tax return by the deadline, which is typically April 30th of each year for most individuals, you may face penalties and interest charges. Here are some of the penalties you may incur:

Late-filing penalty: If you owe taxes and fail to file your return on time, the Canada Revenue Agency (CRA) will charge you a penalty of 5% of the balance owing, plus an additional 1% for each full month your return is late, up to a maximum of 12 months.

For instance, if you owe $10,000 in taxes for the current tax year and you file your return 3 months after the deadline, calculation of late-filing penalty for the tax year is explained below:

Description	Amount
Tax owed for 2022	$10,000
Late-filing penalty (5% of tax owed)	$500
Additional penalty for 3 months late (1% per month)	$300
Total penalty	$800

Repeat offender penalty: If you have been charged a late-filing penalty in any of the three previous tax years, the penalty for a late-filed return increases to 10% of the balance owing, plus an additional 2% for each full month your return is late, up to a maximum of 20 months.

False statement or omission penalty: If you knowingly make a false statement or omission on your tax return, you may be subject to a penalty of up to 50% of the tax you sought to avoid paying.

In addition to these penalties, you will also be charged interest on any balance owing, starting from the date your payment was due.

Interest on taxes you owe

If you owe taxes to the Canada Revenue Agency (CRA) and you don't pay them by the deadline, which is typically April 30th of each year for most individuals, you will be charged interest on the balance owing.

The CRA sets the interest rates every quarter based on the average market yield of Government of Canada bonds. The interest rate charged on late tax payments can vary depending on the current market conditions, but it's typically higher than the interest rates charged by banks and credit card companies.

Currently, as of the second quarter of 2023, the interest rate charged on late tax payments is 5%, compounded daily. This rate is subject to change, so it's important to check the CRA website for the most up-to-date information.

Let's say you owe $10,000 in taxes to the CRA, and you were unable to pay by the April 30th deadline. The CRA begins to charge you compound daily interest from May 1st until you pay off your balance.

For example, let's assume the interest rate is 5% per year, compounded daily. To calculate the daily interest rate, we divide the annual interest rate by 365 (the number of days in a year):

Daily interest rate = 5% / 365 = 0.0137%

The interest charged on day one will be: $10,000 x 0.0137% = $1.37

On day two, the interest charged will be: ($10,000 + $1.37) x 0.0137% = $1.38

And so on, until you pay off your balance.

It's important to note that even if you don't owe any taxes, you still need to file your tax return on time to avoid any penalties or interest charges.Interest is charged on the late payment.Interest is calculated from the day after the payment due date until the day the payment is received by the CRA.

For further information please contact Softron at 1-877-SOFTRON or visit www.softrontax.com