April 30th is as good a day as any for a reminder of obligations and penalties for HST. The new HST regime in Ontario will function under the same penalties as the GST under the Excise Tax Act.
Returns are required to be filed no later than on month after the reporting period for monthly and quarterly filers, and three months for annual filers. For individuals with business income for tax purposes, who are annual filers with a December 31st year end, the rules follow income tax returns where the liability must be paid by April 30th and the return is due June 15th. Failure to file may result in a penalty of 1% of the outstanding tax plus .25% per month for each month the return is outstanding up to 12 months.
Interest on underpaid or late paid instalments at the prescribed rate of interest (which is currently 5% on underpaid account and 3% on overpaid accounts).
There can be addition penalties for gross negligence (which can be up to 25% of the net tax payable), and in severe cases offences for failure to file, failure to provide information or interfering with or hindering an officer which can range up to $25,000 and/or twelve months imprisonment.
There are certain situations where interest and/or penalties can be waived or cancelled, or the time period to file extended. As well, the Voluntary Disclosure program allows taxpayers to come forward and correct inaccurate or incomplete information or disclose information on a voluntary basis. Taxpayers will not be penalized or prosecuted if full disclosure is made before CRA starts any enforcement action or investigation. A voluntary disclosure will only result in paying the taxes owing plus interest.
I’d be remiss if, on April 30th, I didn’t offer a glimmer of hope;
In an informal Tax Court case a taxpayer was assessed almost $13,000 in failure to file, interest and gross negligence penalties on assessed additional GST payable of $36,000 due to the disallowance of input tax credits. The taxpayer did not have any documentation of GST paid because, essentially, the taxpayer had relied on his brother to do his bookkeeping, calculate and file his GST returns and his brother did not keep proper records or receipts. The kindly judge opined that “I do not accept as reasonable that the Minister expects GST to be payable and yet not allow input tax credits”. A reasonable amount for the ITC’s were allowed and the gross negligence penalties were dismissed, in spite of the lack of documentation. There’s no word as to whether the taxpayer was as forgiving to his brother.
