Tax Filing for Businesses - Making Tax Payments, and the Consequences if You Fail to Pay Up

The Canada Revenue Agency (CRA) has many collection policies for individuals, businesses and organizations that owe money to the crown. It’s their job to ensure that everyone pays the required amount of duties, taxes, fees or penalties – and the collection policies change based on evolving legislative provisions and requirements. This may sound complicated, but the good news is that the CRA has made every resource available to help you understand your rights and responsibilities when you deal with them.

The following information will help the self-employed and employers understand their tax payment options – as well as the consequences imposed for neglecting the tax paying responsibilities involved when running a business.

Those who are self-employed will not have their income tax payroll or source deducted. In these cases a great option is to make instalment payments. These help you avoid a large balance owing when it’s time to file your income tax return. If you want to find out whether or not you should be making tax payments for your current tax year, visit www.cra.gc.ca/instalments. It’s a great idea to stay on top of these things because the CRA will charge interest (and in some cases a penalty) on late or insufficient instalments.

Most corporations have to make monthly income tax instalment payments throughout the year for their current tax or fiscal year. This helps ensure that any balance owing at the end of a corporation’s fiscal year will be minimal. Similar to the self-employed, the CRA will charge your business interest on late or insufficient payments. For more details on corporation income tax instalments, you can read Guide T4012, T2 Corporation – income tax Guide and Guide T4012, Corporation Instalment Guide.

If you are a director in a corporation, Director’s Liability is something you should know about. The CRA may hold the directors of a corporation jointly and severally liable if the corporation fails to deduct, withhold, or remit amounts held in trust and if the CRA is unable to collect from the corporation. Additionally, the directors are jointly and severally liable (with the corporation) to pay any penalties that are accrued on outstanding amounts.

Whether you’re self-employed or have incorporated, any amount you owe is payable in full immediately when you’re assessed or reassessed. Legal action might be taken by the CRA to collect the unpaid amount. Also, the CRA will charge compound daily interest at the prescribed rate on any amount owing until that balance is paid in full. Luckily the CRA provides ample information about the payment methods available. Visit www.cra.gc.ca/payments to read about your options.

Another good way to avoid penalties or interest is to keep track of all the important tax-related dates. Here’s one more link, which provides a clear listing of tax return filing due dates, balance owing due dates, and instalment payment due dates for individuals and businesses: www.cra.gc.ca/importantdates.

It’s a great idea to take advantage of these resources. The reason you should stay informed is because the CRA will probably garnish income sources, seize or sell assets, and use any other means under any applicable statutes or laws to collect a tax amount owing. Garnishment action allows the CRA to intercept funds payable to your business by a third party. Also, if any other federal government department owes your business money, the CRA can issue a statutory set-off to that department. This means that the department will send all or part of the money that would normally go to your business directly to the CRA. This amount will then be applied to your outstanding balance. Even worse, your property/assets could be seized, advertised and sold by the sheriff, with those profits being applied to your balance as well.

As you can see, the CRA is pretty dedicated to ensuring that taxes are paid to the crown. Once they have to chase you to pay, they won’t withdraw from any legal proceedings until your account is paid in full. Obviously, this is a scary concept! But the good news is, that the CRA is also “committed to respecting your rights.” The Canada Revenue Agency makes sure that the resources are there for business owners to inform themselves, and take the necessary precautions in order to avoid any kind of tax trouble before it even begins.

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