CRA interest and penalty - late filer

Tax Topics
1

Working on 2021 tax return (sole proprietorship - HST registered).

She had refunds held from 2020 and preceding years due to not filing 2021 and 2022 taxes.
As a result, she has a credit of approximately $5k on her income tax balance.

-2021 she will owe somewhere between $3500 - $5k in income tax.

She made a rather large RRSP contribution in 2021 (over $20k).
In 2021 she is in the lowest marginal tax bracket and has communicated she made more in 2022 likely putting her in the second marginal tax bracket.

When looking at the estimated interest and penalties for 2021 all of this will apply because the CRA has informed me that her income tax credit balance will go to her GST/HST balance owing first.

Further, I believe it will be better to claim RRSP contributions in 2022/subsequent years when her income is higher. Iā€™m trying to figure out the optimal blend of mitigating her interest and penalty and keeping her in a lower marginal tax bracket.

Can anyone comment?

2

I would prepare the tax returns for both years without the RRSP added.
Tax Cycle has a worksheet showing what the interest might be.

Do some scenarios where you apply all or some or nothing to either year and see what the total tax owing is less interest for each scenario.

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