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Caution – New GST/HST failure to file penalty

Canadian Indirect Tax News, March 2007 (07-01)

As previously reported in the Canadian Indirect Tax News, the Canada Revenue Agency is implementing its “Standardized Accounting” initiative on April 1, 2007. The implementation will result in several changes to existing goods and services tax/harmonized sales tax (GST/HST) penalty and interest provisions. The significant changes (from a cautionary perspective) are:

  • A new, failure to file penalty of 1%, calculated on the outstanding amount of tax that is due that period, will apply to any returns filed after their due date – this penalty will increase by ¼% (of the outstanding amount) per complete month that the return (and the amount due) remains outstanding to a maximum of 4% (of the outstanding amount). Filing the return will stop the penalty whether the tax is remitted or not.
  • The prescribed interest rate charged on an overdue amount will be the basic rate, plus 4%. The basic rate is based on the equivalent yield (expressed as a percentage per year) of 90-day Treasury Bills, adjusted quarterly, and rounded up to the nearest whole percentage.
  • The existing 6% penalty imposed on outstanding amounts will be repealed effective April 1, 2007, but will continue to be assessed in respect of unpaid amounts outstanding prior to April 1, 2007.
  • Generally, interest charges will no longer be deducible under the Income Tax Act, for taxation years commencing after March 31, 2007. Similarly, the new failure to file penalty will also be non-deductible. The ongoing deductibility status of the existing 6% penalty is not clear at this time.

If you have any questions or if you require further information please contact your local Deloitte tax advisor or Jim Vincze at 416-601-6207.

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