What you need to know about interest and penalties if you file your taxes late

New tax changes in Canada for 2023 Jamie Golombek, managing director of tax and estate planning at CIBC Private Wealth Management, goes over tax changes in effect in 2023.

The Canada Revenue Agency urges Canadians to file their taxes on time, warning those who don't will have to pay more in penalties and interest.

Tax season started last week, and taxpayers have until May 1, 2023 to file this year, as the deadline of April 30 falls on a Sunday. This same date is the deadline to pay if any money is owed.

For those who tend to procrastinate, here is what you need to know about interest and penalties if you don't file and pay your taxes by the deadline.

INTEREST PAYMENTS

The Canadian Revenue Agency (CRA) says those who owe taxes may be charged interest if they pay late. Those who file their taxes They will also be charged a late-filing penalty if they have a balance owing and file late.

Compound daily interest starts right away (May 1), and the rate is subject to change each calendar quarter – or every three months.

The interest rate on a taxpayer's current or previous balance will be eight per cent on overdue taxes, based on current prescribed interest rates, according to the CRA.

How much that interest will cost varies. For example, the interest rates for the first quarter of this year for overdue taxes, Canada Pension Plan contributions and employment insurance premiums is eight per cent – an increase of one per cent over that of Q3.

Based on Q1 of this year, the interest rates are four per cent on corporate taxpayer overpayment, and six per cent on non-corporate taxpayer overpayment.

The CRA says that the interest rate used to calculate taxable benefits for employees and shareholders from interest free and low-interest loans is four per cent in Q1, which ends March 31. And the interest rate for corporate taxpayers’ pertinent loans or indebtedness is eight per cent.

The agency has not posted a forecast for the second calendar quarter.

For those who opt to pay back what they owe in instalments, the CRA requires those payments be made on time. Otherwise, taxpayers will also be charged instalment interest.

LATE PENALTIES

According to the CRA, the penalty for filing a tax return after the due date while there is a balance owing is five per cent of your 2022 balance owing, plus an additional one per cent each full month after the due date before you file, up to a maximum of 12 months.

The CRA says even those who cannot pay the amount of money they owe should still file their taxes on time to avoid being charged this late-filing penalty.

In an example of how these costs can add up, it said if a taxpayer who was charged late-filing penalties in previous years would, this tax season, face a penalty of 10 per cent of their balance owing, and additional two per cent for each month after the due date until their taxes are filed, up to a maximum of 20 months.

Those paying with an instalment plan will face late fees, but only if their instalment interest charges exceed $1,000.

If there are "circumstances beyond your control," the CRA says, it is possible to request these penalties be cancelled or waived, but this request can only be made within a 10-year span. If granted, this cancellation would not apply to debt older than that.

Reporting for this story was paid for through The Afghan Journalists in Residence Project funded by Meta.