Tips & Resources

Interest and Penalties

Corporate Tax

Payments for corporate taxes are due two or three months after each year fiscal year. If the payment deadline falls on a Saturday or Sunday, the deadline is extended to the next business day. Any unpaid amounts owing are charged interest effective 1st day after the deadline at the prescribed interest rates set by the Canada Revenue Agency. The filing for a corporate tax return is generally 6 months after the fiscal year end date. Late-filing penalties for returns not filed on time and owing tax are subject to a penalty of 5% of the balance owing plus 1% on the balance owing for each month the return is late. If you file a late return and are expecting a refund, there are no penalties or interest deemed on the late return. Penalties for repeatedly filing late returns with taxes owing can result in a more severe penalty of 10% (both federally and provincially) of the amount unreported plus 2% of any unpaid tax each month that the return is late to a maximum of 20 months.

Personal Tax

Late filing penalties are 5% plus 1% per month (to a maximum of 12 months) for the first time a return has been filed late. If a return has been filed late for the second time within 3 years, the penalties are doubled, automatic 10% plus 2% per month (to a maximum of 22 months). It should also be pointed out that even if the taxpayer knows that they have a balance owing, it’s highly recommended that they file by the deadline to avoid late filing penalties.

Failure to report penalties: if a taxpayer fails to report income two times within three years, there is a 10% Federal and 10% Provincial penalty on the amount not reported. There are no penalties, if the income is reported at a later time, but prior to being notified by the Canada Revenue Agency (CRA).

Capital Gains and Capital Losses

Many people are aware that they have capital gains or capital losses when they sell capital property.  However, there are cases when capital property is deemed to be disposed with no sale actually taking place. 

 

Here are some examples, obtained from Canada Revenue Agency website, where they deem capital property to be disposed and is to be reported on the individuals’ tax return:

  • When one property is exchanged for another

  • When you give property (other than cash) as a gift

  • Shares or other securities are converted

  • Settling or cancelling a debt owed to the individual

  • Transferring property to a trust

  • Property is expropriated

  • Property is stolen

  • Property is destroyed

  • Option to hold to buy or sell property expires

  • The owner dies

  • The individual leaves Canada

  • There is a change in use of the capital property

 

Capital gains versus business income for real estate

The Canada Revenue Agency has an income tax bulletin (IT-218R) explaining some factors that go into consideration when determining if a gain on the sale of real estate should be considered business income, property income or capital gain.  There is no provision in the Income Tax Act which describes the gains from the sale of real estate are to be either capital or income in nature.  Some areas that the CRA looks at to determine with it is capital gains or business includes, but is not limited to, the intention of the tax payer, the feasibility of the intention, the profession of the taxpayer and the length of time through which the real estate was held by the tax payer. Each case is specific and these factors are not exclusive of other factors. 

 

If you have further questions on the sale of real estate, please feel free to visit us.

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