The season for personal taxes is over, but that doesn’t mean taxes have completely left your thoughts. If you tend to pay taxes rather than receive a return, May often signifies the beginning of saving for next year’s tax filing. If you’re a taxpayer, you may be wondering if paying your taxes late would affect your credit score. Credit score is impacted by a lot of factors, and your taxes can be one of them.
How to Pay if You Owe Taxes
If you owe taxes, it’s important to pay them as soon as possible. There are many ways you can arrange to pay your taxes. You can make payments online, by mail, or in person in full or partial sums.
Paying online can be done through online banking services, using a debit card and paying directly to the CRA, wire transfer, or using a credit card, PayPal, or e-transfer through PaySimply or Plastiq. The amount of time it takes for payment to be processed online depends on the type of payment, but typically it can be completed in one to three business days. Note that you cannot pay your taxes using cryptocurrency, gift cars, or cash, and asking for these kinds of payments is always a scam.
Paying in person can be done at a financial institution or Canada Post location, using cheque, debit, or cash. These payments are considered paid on the calendar date stamped, so if you’re late or almost at the deadline to pay your taxes, paying in person is often the best choice.
Paying by mail can be done through a cheque or money order, and is considered paid once received by the CRA. However, you have to wait for the mail to arrive at the CRA, which can often take over five business days.
If you can’t afford to pay your taxes entirely, on time, you can also arrange with the CRA to pay your debt over time. You can set up a payment schedule to ensure regular payments are made in an amount you can afford.
What Are the Consequences of Paying Taxes Late?
There are several consequences to filing and paying your taxes late. This includes interest and penalties for your late payments. The penalties for your balance owing is 5% plus 1% per month for up to 12 months that you file late, on top of the interest that will accrue on your balance owing. Other consequences for late payments and filing are that federal or provincial benefits you receive may be interrupted. Whether that’s the Canada Child Benefit, Canada Workers Benefit, GST Benefits, or provincial credits, these payments may be interrupted if you file late. Benefits are often postponed until your taxes have been filed.
What Does Affect Credit Score?
Your credit score is calculated by a number of factors. This includes your payment history, utilization, credit history, and credit product variety. How and when you pay your credit cards off, how often you meet or exceed your credit limit, how long you have used your credit cards, and the versatility of your credit products (credit cards, mortgage, car payments, etc.) all affect how your credit score is calculated. Paying your taxes late or owning a small amount of taxes will not likely impact your credit score. This is because when you are filing your taxes, they are kept private and none of the information about your taxes goes to the Canadian credit bureaus. However, if you owe a large amount of money from your taxes, the CRA may send this information to the credit bureaus as a large amount owing becomes public record if the CRA needs to take you to tax court. If this happens and your tax debt becomes public record, it will significantly impact your credit score!
How to Avoid Late Taxes?
The best way to avoid paying your taxes late and avoid late fees is to file on time, with a financial plan in place. Chartered Professional Accountants can help you prepare throughout the year for tax season, and ensure that there is a plan in place to pay your taxes on time and in full. If you have a balance owing on your taxes and are unsure how to proceed, contact a qualified accountant to help you move forward. Chartered Professional Accountants can help you financially plan for the future and ensure you incur the least amount of penalties and interest.
Gallo LLP is your trusted Edmonton accounting firm. Our expert team of professionals can help you plan for the future. If you’re in need of financial planning advice, we’re here to help. Gallo LLP helps individuals and businesses win with their finances. Contact us today!