Tax Tip Thursday

This week’s show and blog post is applicable to individuals, small businesses, and corporations alike! It affects both income tax and HST.

Remittances

Once your return has been filed (HST, T1 Personal or T2 Corporate) and it has been established that you have taxes payable, you are required to pay that amount in full by the due date. This is a REMITTANCE. The day after your taxes are payable is the day that the interest starts and it is currently at 9% and it compounds daily!

For reference, see the Interest and penalties – Personal income tax page on Canada.ca

So, my advice to people that do not have the funds set aside already and if you have access to a line of credit or loan at less than 9%, give strong consideration to using it to pay your tax balance owing. You will be paying less interest, it will not be in compounded daily and in my experience, you are more likely to pay off a bank loan of your own than to pay off the CRA.

If you cannot remit the full amount, you should set up monthly payments. Establish a 6 month program for yourself with the first payment being April 30. CRA will likely not even contact you if you make the 6 monthly payments. If you do not, they will contact you, but do not depend on it. Hiding your head in the sand is NOT good strategy. Do not think that since you did not get contacted by the CRA, it will go away. It will not!

Instalments

If all that was not enough, if you owed more than $3,000, you are required to make installments towards the CURRENT year of taxes.

So, if you filed your taxes for April 30 for this year and you owed $6,000, then you will be required to not only pay the $6,000, but they will also want you to make $6,000 in instalments for the 2023 tax year.

People often think a couple of things relative to these instalment notices:

1. these are the REMITTANCE payments for the taxes just filed
2. they are suggested payments that you should make through the year

Neither is correct.

— AND —

If you are required to make instalments and you do not, you will be charged interest from whenever the instalments were to have been made.

— AND —

If the interest amount is more than $1,000 you will ALSO have to pay penalties from the date the instalments were to have been made.

Expensive, I know.

The most important takeaway from this is that burying your head in the sand will not make the problem go away! And, just because the CRA has not contacted you, do not think that means you are in the clear. If you cannot pay your tax bill on time, you should make arrangements and not miss the instalments! If you need help understanding this or planning your CRA instalments, please book an appointment.

Disclaimer:

This article provides information of a general nature only. It is only current at the posting date. It is not updated and it may no longer be current. It does not provide legal or tax advice nor can it or should it be relied upon. All tax situations are specific to each individual. If you have specific tax questions you should book an appointment for a 1 on 1 consultation.