Posting CRA Penalties and Interest
by Mona Lisa
We had unremitted source deductions at year end. After rolling payroll records over to the new year I posted the arrears amount owing to Accounts Payable.
Revenue Canada issued a subsequent statement with penalties and interest. I am aware CRA doesn't allow these charges to be expensed (penalties and interest exp. acct).
Where do I charge this to? If I post it to income tax payable then the current months remittances are not accurate on the balance sheet. Do I need to create a new liability account?
You are correct in saying that CRA does not allow you to deduct penalties and interest when preparing your tax return. That means they are still legitimate business expenses, just not tax deductible ones.
What I do is I create two sub accounts under my Interest account (substitute what ever you call you it). One is sub account is tax deductible and the other is not tax deductible.
Make a note that you offset your CRA interest expense with CRA interest income ... therefore this is one instance where I book CRA interest income to the Interest expense not deductible account.
This makes it easy when preparing your T2125 to know what not to claim. This will be a permanent difference between between your books and your tax return ... as opposed to a temporary difference which is due to timing ... like amortization for example.
Check out other items that not deductible by clicking here
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