What happens to my tax bill if I pay late?
Where a taxpayer has not paid the full amount of an assessment or reassessment by the day it was due, the CRA will add interest to the principal amount. The interest rate varies; as of writing, it is 6% per annum, compounded daily, for most matters. These substantil rates have a punitive effect, and the government raised them to replace penalties for under-paying taxes.
Where will the CRA assess penalties?
In some cases, the CRA will also assess penalites, which almost always relate to either the failure to file returns or where the CRA considers taxpayers to have filed returns that include inaccuracies. This typically occurs where taxpayers file late, failure to file "information returns" such as foreign reporting forms or T4s, or after the CRA audits and considers the taxpayer to have intentionally misrepresented their circumstances to reduce their tax bill. This can substantially inflat
If you owe tax to the CRA, a collection officer will be assigned to your case. The officer may garnish your wages and bank account, place a lien on your home, seize physical property, deny you other government benefits by redirecting funds through a Requirement to Pay (RTP) or right of set-off, or hold a third party liable (such as a family member) to whom you have transferred money.
What can I do about penalties and interest?
The CRA has the discretion to waive (not charge in the first place) or cancel (remove retroactively) penalties and interest. It does not have the discretion to reduce the principal tax owing, except via the truly exceptional Remission Order. These remedies will not, however, remove the principal tax debt. In typically situations, if a taxpapyer cannot remove a tax balance via an objection or appeal, the only legal mechanism to reduce the principal debt is via a consumer or commercial proposal or a bankruptcy.
One program that the CRA administers under which it waive and cancels penalties and interest is the taxpayer relief program; the other primary avenue is the voluntary disclosure. Essentially, by filing a taxpayer relief request, the taxpayer explains that it is unfair for the government to pursue the penalties and interest owing in their circumstances. These may be requests for relief directly, or they may be requested via an appeals officer adjudicating a notice of objection. CRA may even waive interest and penalties themselves if an audit or objection takes an excessive amount of time to resolve. CRA's guidelines for providing relief specify the following grounds:
- CRA action or inaction (for instance, an unduly long audit process or adjournment request by the CRA's lawyers in tax court)
- Inability to Pay or Financial Hardship
- Extraordinary Circumstances (such as fire, flood, illness, or a death in the family)
