What Happens When You File Your Small Business Tax Return Late?
Preparing and filing a tax return isn’t enjoyable for most. It can be tempting to put it off for just a little longer. So, what happens when you file your small business tax return late?
During the current crisis, there are some deadline extensions, but consequences for filing late still exist. This article is an overview of what will happen if you file your small business taxes late or incorrectly.
With the COVID-19 pandemic affecting everyone and especially small businesses, it’s a difficult and uncertain time right now. The good news is the CRA has given some business owners a little more time. If your return is due on between March 18 and June 1, 2020, the due date is extended to June 1, 2020. The payment for corporate taxes due has been extended to september 1st.
However, it’s still important to file on time and be honest about your income: late filers and those who omit important details on their tax returns are subject to penalties. Even if you believe that your small business owes no money, it is good practice to file on time and leave the CRA no reason to penalize you, should they find any missing income in your return later.
Failure to report income more than once
What if you didn’t report some of your business income in 2019, and you also didn’t report part of your income during the previous three tax years?
The CRA will consider this failure to report income if you failed to report an amount equal to or greater than $500 for a tax year. If your small business finds itself in this situation, you can expect penalties.
You will need to pay 10% of the missing income amount. You’ll also need to pay half of the difference between the understated tax and/or overstated credits and the amount you failed to report, plus the taxes withheld from the non-reported income. The penalties you must pay will each be equal to the lesser amount of the two.
The good news is that if you have failed to report income, you can let the CRA know about it by using the Voluntary Disclosures Program, and you may get some penalties waived.
What can I expect if I file late?
If you file your small business tax return late, you will be charged a penalty by the CRA, called a late-filing penalty. This penalty applies if you owe taxes for the 2019 tax year and will equal 5% of the taxes you owe. For example, if you owe $5,000 in taxes, you’ll have a $250 penalty added to your payment.
In addition, you will also need to pay daily interest that accrues on outstanding tax payments, and an additional 1% of your balance for each month that you don’t file your return. It is also possible that your small business will face higher penalties if you’ve been charged a late-filing penalty for any tax return during the last three years.
Penalties for false statements and omissions
When a small business or corporation intentionally or negligently makes a false statement on a return or omits important information, another penalty applies. The CRA will charge a penalty of half the amount of understated tax or $100, whichever is greater.
If you are in need of an accounting partner with experience and you are ready to take your small business to a new level, contact us to learn more.