A Little Extra Time for Self-Employed People to File

The April 30, 2018, personal tax deadline has passed.  However, for self-employed individuals (if you or your spouse or common-law partner carried on a business in 2017), the deadline to file for you and your spouse is June 15, 2018.

Even though the return is not due until June 15th, you were required to pay your income tax debt by April 30th. These dates also apply to filing your GST/HST return if you are an annual filer for GST/HST purposes.

Contrary to popular belief, the interest you pay CANNOT be claimed as a deduction on the following year’s income tax return.

If you have an amount owing (of more than $2) and cannot pay it in full by the deadline, you will be charged compound daily interest.  The current interest rate is 6% (per annum) and changes quarterly. Generally, you can make arrangements for monthly payments as long as the debt is paid before the next income tax deadline.  Contrary to popular belief, the interest you pay CANNOT be claimed as a deduction on the following year’s income tax return. The fact that the interest is not deductible can effectively double the rate as compared to deductible interest, depending on your tax bracket.  6% does not appear to be an unreasonable rate but, because it is not deductible makes it very expensive.

What happens if you're late filing your return?  Even if you cannot pay your full balance owing on or before April 30th, you can avoid the late-filing penalty by filing your return on time.  Take note of the penalties:

  • If you owe tax for 2017 and you file your return for 2017 after the due date of June 15th, you will be charged a late-filing penalty. The penalty is 5% of your 2017 balance owing, plus 1% of your balance owing for each full month your return is late, to a maximum of 12 months.

  • If you were charged a late-filing penalty on your return for 2014, 2015, or 2016 your late-filing penalty for 2017 could be 10% of your 2017 balance owing, plus 2% of your 2017 balance owing for each full month your return is late, to a maximum of 20 months.

Like interest on amounts owing, penalties are not deductible for tax purposes so, the penalty rates above are effectively doubled if you are in the highest tax bracket.  The penalties are easily avoided by getting your return filed on time. You have five and a half months after December 31st to get the return done and filed.  This really should be lots of time.

A large income tax debt (including penalties and interest) is one of the first signs of financial hardship to arise and shouldn't be ignored. Besides the money stress, dealing with CRA and their collection calls and procedures can cause significant additional stress.

Avoid all the stress by putting filing dates and reminders on your calendar, budget for payments, and get returns filed and debts paid on time. Easier said than done? Not everyone likes carrots but most of us prefer to avoid "the stick".