People are fully aware that if they file their tax returns after the deadline is over, they are going to face a tax penalty. The amount involved is five per cent of the tax amount that is due. For each month of late filing, the charge is one per cent every month for up to 12 months. If there is no tax amount due in that assessment period, then there is no question of a tax penalty.
Some taxpayers have raised a concern that the tax penalty clauses in Canada are tough. Every year, thousands of Canadians are affected by what can be described as a penalty for repeated failure of reporting their taxes or income.
This kind of a tax penalty is prompted by simply forgetting to submit two returns in a four year period; that is, once in the very recent tax period and one more time in any of the three previous tax periods. This penalty is mammoth – it is twenty per cent of the tax amount that has not been reported in the recent tax period year. This is because the real crime is the non-reporting of income rather than the failure to pay the taxes.
In a self-reporting tax assessment system that prevails in Canada, such a kind of tax penalty should not come as a surprise. People are expected to report all their earnings and sources of income. A failure in doing this will have negative consequences beyond the assessment of additional taxes due to the CRA.
People complain because they have been assessed several thousands of dollars due to slip-ups which may have been done inadvertently as a result of tax slips that may have been sent to an old address or slips arriving late. The rationale behind this penalty does not make it necessary that there be any evidence proving tax evasion. Failure to report a couple of T-slips is sufficient. This is assessed by the CRA servers automatically and a failure to report a slip is likely to come up in the eyes of the CRA.
The CRA have asserted that the conduct of a particular taxpayer is an important factor in influencing a decision on whether to cancel or waive a tax penalty. CRA wants to make sure that all taxpayers have taken reasonable care in handling their tax obligations and on a punctual basis in view of the self-assessment taxation system.
Accounting firms have made a note of CRA’s matching program. The CRA computers begin matching the slips that the tax filers have reported with those that the issuers have filed with the CRA. There may be some time left for a taxpayer to report slips, but he or she cannot be complacent and wait too long to do that.
The best thing to do in cases when a slip arrives late is to contact the CRA or send the slip in without delay. All tax accountants who are proactive in nature would advise sending the slip in. A T1 Adjustment Request Form is always available on the website of the CRA. This is one kind of tax penalty where waiting can be an expensive affair.