Tax Tip Thursday

Since more and more people are having to deal with PAYING tax bills this year (rather getting paid), today is a crash course on paying the CRA and why it is so important not to bury your head in the sand!

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 the interest starts, and it is currently at 5% compounding daily! So my advice to people who do not have the funds set aside and who have a line of credit with an interest rate lower than 5% is to give strong consideration to using the line of credit to pay your taxes. You will pay less interest, it will not be compounded daily, and, in my experience, you are more likely to pay off a bank loan of your own than you are to pay off the CRA.

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

For your reference, the CRA page on Interest and Penalties

Interest Relief

One silver lining from COVID (maybe), is that if:

• Your taxable income is less than $75,000, AND
• You received COVID benefits, AND
• You filed your 2020 tax return,

You are automatically eligible for interest relief and you can defer paying the income tax payable until April 30, 2022. Note that this only applies to income tax — NOT HST. This also only applies to the interest! If you file your return late, you will still have late filing penalties.

Personally, I strongly suggest you avoid taking advantage of this if possible. There are some other options for interest relief, but each case is different.

Contact me if you would like some help exploring these options!

For your reference, the CRA website for Interest Relief

Collections

If you do not make the remittance in full or do not voluntarily send in six monthly payments, the next thing that happens is the CRA collections department contacting you. There are two levels of collections:

1. Level 1 collections will be fairly cordial and will be willing to set up a payment program of up to six months.
2. Level 2 collections will be fairly pushy. They MAY be willing to stretch out your payments to 12 months, but will require bank statements, cash flow analyses, pay stubs, etc.

If you hit 2nd level collections and make an arrangement with them for payments, I strongly suggest you keep to it. They will move quickly with legal action if you do not.

The other problem with reaching this point is that it becomes EXTREMELY difficult to dig yourself out of the hole.

The CRA site regarding Collection of Overpayments

Instalments

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

So if you filed your taxes for April 30 this year and you owed $6,000, you will not only be required to pay the $6,000, but will also have to pay $6,000 in instalments for the 2021 tax year!

People often think a couple of things about 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 of these are correct!

AND

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

To wrap it up…

Do NOT bury your head in the sand! Your tax bill will not disappear on its own. Pay the bill if you can, or make arrangements to pay it.

Find yourself stuck in one of these situations?

We will be happy to help. We can help you manage your books to ensure you pay the CRA on time, and we can help you avoid getting in this type of trouble next year!  Give us a call to set up 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.