Outsourced CFO | Avoiding Late Filing Penalties
Business owners often run into cash flow issues as a part of running their business says outsourced CFO. There are three main reasons why business owners fail in business, which includes being unable to attract customers, running out of money, and not being able to find the right team. Business owners often have to come up with creative ways to increase their cash flow, however those business owners who have tried to increase the cash flow in their business, by filing their corporate or personal taxes late often find out that they think their cash flow worse because they are assessed penalties that make their cash flow situation far worse.
Business owners should understand that whether they are corporate tax arrears, personal tax arrears, or if they owe GST, they can always call Canada revenue agency in order to arrange payment plans. They will allow up to six months for businesses to pay corporate or personal of years says outsourced CFO. And businesses can get up to three months of a payment plan in order to pay GST. Rather than filing late, and getting penalized because of it, business owners should just contact CRA up front and be honest with them.
The penalties that people face from being late filing their corporate or their personal taxes, is 5% of the taxes that they owe and then 1% each month. If they havenít filed for more than one year, after the first year, the penalty increases to double says outsource CFO, which is 10% of the taxes that they owe plus 2% per month. Not only do these amounts add up really fast and can be very detrimental to those who are owing taxes, but there is also additional interest on top of the outstanding balances which is 6% in addition to the penalties each year. If people are already having a hard time paying their taxes, having to pay additional penalties on top of the taxes makes your situation worse.
Outsourced CFO says that people can avoid problems by understanding what their deadlines are. Personal tax deadline is April 30 for almost every person in Canada unless they own a proprietorship says outsource CFO. People or their spouse who own an unincorporated business have a filing date of June 15. Regardless of when the filing date is, people start accruing interest of 1% per year from April 30.
The corporate deadline that they need to keep in mind says outsourced CFO is six months after the corporate year end. Whenever a business owner has decided their fiscal year and should be, there corporate taxes will be due to be filed six months after that date. And, the GST that those business owners owe will be three months after that fiscal year end. Outsource CFO says that this can be difficult, because the GST is due three months before their corporate taxes are due to be filed, but with the right strategy with the accountant, business owners can avoid problems.
Filing taxes late is never an effective strategy to helping cash flow says outsourced CFO. Often, business owners believe that they have to pay their taxes at the time that they file them, and if they canít, they can simply file their taxes later, when they have been able to collect all of the money that they owe in taxes. Unfortunately, this strategy doesnít work because rather than buying extra time to pay taxes, all they do is incur penalties, that increase the amount of money that they owe Canada revenue agency.
The penalties that business owners will get for filing their corporate taxes late says outsource CFO is owing 5% of the amount of taxes that they already owe plus 1% per month. The more years that business owners havenít filed, get assessed at a double the rate. 10% of the amount of taxes that they already owe, and then an additional 2% each month. While interest on the taxes that they owe is typically 1% a year, once a business owner accrues penalties, the interest that they owe on the outstanding balances is 6% per year which is in addition to the penalties that they have already received. Itís very easy to see that business owners are not helping themselves by filing their corporate taxes late.
Many business owners are mistaken when they think that their taxes need to be paid at the same time that they file them. Outsourced CFO says that while that is preferred, Canada revenue agency also will allow businesses to enter into a payment plan with them. Whether itís corporate or personal taxes that they owe, they can take up to six months to pay that off as long as they contact CRA to make that payment arrangements. This can mitigate the entire reason they try to file their corporate taxes late. It can also help them mitigate their cash flow issues simply by allowing them six months in order to pay this bill. Since cash flow issues is one of the biggest reasons why business owners run out of business, by utilizing the payment plan, can help business owners stay cash flow positive while theyíre generating the revenue in order to pay those taxes.
The only time that this is different, is if a business owner owes GST. Canada revenue agency sees owing GST funds as a little bit more seriously than corporate or personal arrears says outsourced CFO. The reason is because CRA sees GST as a trust account. Since itís not the business ownerís money, and actually belongs to the government, if a business owner is not paying GST, that means they collected the money from the client ahead of time, and kept it to use it for their own gain. The government does not look kindly on business owners using government funds in order to increase their own private business. GST only has a grace period of three months of a payment plan in order to get paid.