Last updated: Dec. 22, 2023
Every small business owner needs to file a tax return annually. Not everyone does though. This can result in serious consequences.
The Income Tax Act imposes penalties on Canadian business owners who do not file a tax return, make false statements, or underreport their income. In the case of willful fraud or tax evasion, you can be criminally prosecuted.
Penalties for Filing Late
In Canada, unincorporated small business owners and farmers need to file their annual tax return and pay all taxes by June 15 of the following year.
If you neglect to file a return and need to pay taxes, you will be assessed a penalty of 5% of the amount owning plus 1% of the unpaid tax for each month the tax return is late (to a maximum of 12 months).
You will also be charged compound daily interest on any outstanding tax owing.
Penalties for Tax Evasion and Fraud
Tax evasion occurs when a small business owner or individual knowingly ignores tax laws to avoid paying taxes. This usually occurs when you underreport your income or overstate deductions to minimize the amount of tax you should pay to the Canada Revenue Agency (CRA).
The tax and legal consequences for tax evasion and fraud can be strict. Those who are convicted of tax evasion can face the following criminal penalties:
- Jail time (though this is not common)
- Fines of up to 200% of the amount the filer is trying to avoid paying
Using a tax consultant who specializes in your industry can ensure you’re meeting all your tax obligations and still taking advantage of any available tax loopholes to minimize the amount of money you pay to the CRA.
Voluntary Disclosure Programs
If you simply forgot to pay your taxes last year or made a mistake while filing your tax return, the CRA has created a program whereby a taxpayer can avoid some of the serious consequences they would otherwise be susceptible to.
Under the CRA’s Voluntary Disclosures Program, Canadian taxpayers who made mistakes in their tax return, didn’t file, or failed to declare what they earned, can apply for relief from interest, penalties and prosecution.
To be eligible, you must meet the following criteria:
- Disclosure must be voluntary
- If the CRA has asked for information before you apply for the Voluntary Disclosure Program, you cannot use it
- Disclosure must be complete and a penalty must be involved
- The tax filing must be more than a year old. You cannot apply for the Voluntary Disclosure Program for current filings.
The biggest benefit of the Voluntary Disclosure Program?
While you still need to pay any back taxes and possibly interest, you avoid any penalties or even prosecution.
Applying for the Voluntary Disclosure Program also means the reinstatement of benefits, including the Canada Child Benefit, GST/HST credit, and RRSP carry forwards.
Need help with unfiled tax returns?
FBC, Helping Small Business Owners File Their Tax Returns
It’s not uncommon for Canadian small business owners or farmers to not file their annual taxes. After all, many business owners are too busy running their business. Not filing your business tax returns though can become stressful and get in the way of running a business efficiently.
If you’re a small business or agribusiness owner, the professional tax consultants at FBC can help you stay on top of your record keeping, ensure you take advantage of any legal tax loopholes, and file your taxes on time ensuring you pay the least amount of tax.
For more information on FBC and the services we offer, call us today at 1-800-265-1002 or submit an online form and an FBC tax specialist will contact you at your earliest convenience.