With the arrival of the new year, many taxpayers would benefit from some of the following resolutions to reduce their tax burden.
If, during a fiscal year, a taxpayer has to pay more than $1,800 in taxes to either government, they must make instalment payments during the following year.
Interest and Penalties
If instalments are not paid, interest will be accrued at the rate of 5%. This rate varies quarterly based on the rate established by the Bank of Canada. In Quebec, a taxpayer who has not paid more than 75% of the instalments required during a year shall be assessed a penalty: the interest rate will be increased by 10% to 15%.
Resolution to Make
It is highly recommended to always pay instalments required by the tax authorities because it could be very expensive to omit them.
File Your Return on Time
To encourage taxpayers to meet their fiscal obligations, the law provide for penalties if these obligations are not honoured on time.
When a tax return is filed late and a balance of tax is owed, the penalty is 5% of the unpaid taxes. This penalty increases by 1% for each month that the delay continues, up to 12 months. The maximum penalty may therefore be 17% of the outstanding balance.
In the case of a second offense, the penalty is 10% of the unpaid taxes and it increases by 2% per month up to a maximum of 20 months. Thus, a tax return filed late for a second time could result in a penalty of up to 50% of the unpaid taxes.
Tax Slips (T4, T5, etc.)
Other penalties apply when various forms are filed late. These penalties are generally established based on a fixed amount and a maximum number of days where applicable. For a declaration required by law, the penalty is $10 per day, with a maximum of 100 days.
Revenue Quebec has practice charging arbitrary assessments which can represent significant amounts. Currently, Revenue Quebec agrees to cancel arbitrary fees when a taxpayer files their statements, even when the deadline to contest these has expired. However, this administrative practice could change in the future and one should remain vigilant if such a fee is received.
Filing a late return can lead to other penalties, especially if you have to file an application for a fiscal election. In our previous columns, we examined Article 86.1 of the Income Tax Act regarding foreign spin offs. It is still possible to file a fiscal election late, but you will be imposed a penalty of $100 per month, up to $8,000. In order to be accorded an alternate tax treatment, you must convince the Minister that it is reasonable to accept your request...
Resolution to Make
To avoid the inconvenience of a tax invoice strewn with penalties, make the resolution to file various forms and tax returns within the prescribed time limit.
Many changes will be made to tax laws in the coming months. It is therefore recommended to review certain documents, including:
- The remuneration policy of a shareholder, as paying dividends may no longer be the solution; and
- The will of some taxpayers, as the rules governing testamentary trusts will be greatly modified.
Resolution to Make
This list of changes is not exhaustive. It is important to focus on fiscal rules in order to avoid unpleasant surprises when filing your tax return.
The items mentioned above represent only a few of the many facets of the Income Tax Act affecting taxpayers. Unfortunately, tax burdens tend to increase over time, and these will be increasingly subject to verification or questioning by the tax authorities. All taxpayers should therefore resolve to review their file from every angle, to ensure that their situation is optimized and that their file contains all the necessary documents.