For CRA Corporate Tax Late Filing
The due date for your tax-owing is the “year-end” which you have established with the CRA. If you do not make a payment by this due date, the tax owing will be subject to a series of late penalty fees, graduated interest rates, and monthly interest rates until it is paid in full.
For this article, we will assume a year-end of Apr 30.
What are all the corporate tax late filing penalties applied?
- On May 1, an automatic 5% penalty is applied to the total tax owing.
- Starting May 1, going forward every day, an annual interest rate of 6% is compounded daily. This is a daily compound rate of approximately 1.64%
- Starting May 31st, a 1% late penalty is added to the total amount as of May 31 due to being one month late in paying your tax owing. This repeats on Jun 30, Jul 31, Aug 31, Sep 30, so forth for a total of 12 months from May 1.
- Example: Tax owing, $10, 000 – no payment made until May 31 of the same year
- Tax Owing on May 1: $10, 664 to account for the initial 5% late penalty fee and 1.64% daily interest on the original $10, 000 owing tax amount.
- Tax Owing on May 2: $10, 838, to account for the daily interest rate of 1.64% on $10, 664.
- Tax Owing on May 3rd: $11, 016.64 to account for 1.64% compound interest on $10, 838
- Tax Owing on May 4th: $11, 197.32 to account for 1.64% compound interest on $11, 016.64
- Tax Owing on May 30st: $17, 092.09 to account for all the compounding interest since May 4
- Tax Owing on May 31: $17, 546.12 to account for the compounding interest, and the 1% late fee that is added at the end of each month, you still have tax owing to the government.
As you can see, the compounding interest adds fast, and the monthly penalty of 1% also impacts the tax owing significantly. There it is highly advisable to pay your corporate tax owing amounts on time to prevent it from spiralling out of control.
If you need assistance with late corporate tax filing or want consultation on your corporate tax planning, reach out today for a consultation.