Outsourced CFO | Using Tax Deadlines To Avoid Penalties
Being low on cash is a problem that most business owners are going to face at some point in their business says outsourced CFO. Many business owners must come up with creative ways to increase the cash flow in their business in order to avoid having to close their business. Since 50% of all businesses go out of business in five years, and 29% of those businesses say that running out of cash was the reason why their business failed. Business owners often believe that by delaying when they file their taxes, can help them deal with extremely tight cash flow issues, but they end up making the situation worse for themselves by triggering penalties.
Business owners should understand that the only thing that will happen to their business if they file their taxes late is that they will get penalized. The penalties are significant, and can contribute to the reason why a business owner may have to close the door to their business says outsourced CFO. The late penalty for just a single year of not being filed on time, is 5% of the balance that they owe with an additional 1% per month. If a business owner has been late more than a year, the second and subsequent years are going to be penalized at 10% of the entire balance owing and 2% additional per month. Not only are these the penalties, but business owners also get assessed interest on top of the outstanding balances at 6% per year.
Business owners need to understand when all of their tax filings are due in order to avoid filing late says outsource CFO. Personal taxes are always due April 30 for all citizens across Canada, unless they or their spouse owns a proprietorship, but owning an unincorporated business, they can push their filing date back by a month and Ω to June 15 says outsourced CFO. The next tax deadline they should have memorized, is there corporate tax deadline. Corporate taxes are due for business owners six months after their fiscal year end. Regardless of when this fiscal year and is, business owners should understand that six months later, there corporate taxes need to be filed. If they have May 31 as their filing deadline November 30 is there filing date. If it is February 28, there filing deadline is August 31. The last filing deadline that business owners need to know, is GST. Business owners have three months after their fiscal year end in order to file their GST. This can be difficult says outsource CFO, because GST is due three months before the corporate taxes are due. However, this can be a planning opportunity for businesses and their accountant to ensure that they donít miss any important deadlines, and that they pay there GST on time.
If business owners are not able to pay either their personal, corporate or GST arrears, they will be able to contact CRA and ask for an extension. Canada revenue agency often allows six months for personal or corporate tax arrears to be paid, and three months for GST.
The only thing that delaying filing taxes does for a business, is makes them pay penalties says outsourced CFO. While many business owners tend to think that by delaying filing their taxes can help them avoid interest charges, or help them by time in order to get the money together to pay their taxes, but this does not work. There is no logical reason why any business owner should not file their taxes on time.
Even if they donít have the money in order to pay taxes says outsourced CFO, delaying the filing of them, will only trigger penalties. If a business owner doesnít have the money to pay taxes in the first place, having to pay penalties in addition to those taxes is going to create problems for them. If a business owner does not have the funds, they can always contact Canada revenue agency and asked them for a payment plan. CRA is often authorized to allow business owners to pay their tax arrears within six months, so as long as a business owner is communicating with CRA, they are willing to accept a payment plan. For business owners that are running into a cash flow problem, this can be all thatís needed in order to minimize that cash flow problem. Instead of having to pay the lump-sum, and hurting their business, business owners can work out a plan in order to pay those taxes off over time.
Business owners often believe that they start incurring interest on the taxes that they owe starting on the day that they file their taxes says outsourced CFO, that way they believe that filing their taxes late, they are saving themselves interest. First of all, the interest that is being accrued on corporate and personal taxes is only 1% per year on the total amount owed. It would take a massive tax bill to amount to anything significant. Also, business owners may need to understand that they start accruing that interest three months after their fiscal year end, not when they file their taxes. So regardless of exactly when they file, there accruing the same amount of interest.
If business owners have attempted to save themselves money by filing their taxes late, and have realized the error of their ways, outsourced CFO says there still may be hope for them. This also works for businesses that did not file their taxes on time for a variety of other reasons. Whether they could never fall taxes before, they are still searching for an accountant, or they just lost track of time. If a business owner already is aware that they are late in filing their corporate taxes, but Canada revenue agency still has not started sending them demand letters or phone calls, business owners can do what is called a voluntary disclosure. This is where they contact CRA to inform them that they are late in filing their taxes. They will send an agreed-upon date to have those taxes filed by, is will the business owner will have to agree to pay all interest, and then CRA has the authority to remove the penalties from the business owners account.