Time slips away, deadlines pass, and you still haven’t filed your taxes. Maybe you’re even a few years behind. Whichever boat you’re in, there will always be that sinking feeling of tension anytime someone mentions the word “taxes,” until you finally get the task off your plate.
There are a lot of different reasons to procrastinate – maybe you have no idea how to estimate your expenses or you don’t think you’ll have enough funds to pay what you owe. Unfortunately, the issue doesn’t go away by itself. Like many things in life, we often fear the unknown. But just taking that first step to get your taxes back on track will bring such an immense sense of relief, you’ll wonder why you took so long to do them in the first place. Tackling life’s little challenges, like filing your taxes, is always something worth celebrating.
Tax Deadlines and Penalties in Canada
The tax deadline in Canada is usually April 30th. Self-employed people have until June 15th to file their taxes, but the balance owing must be paid by April 30th.
If you don’t file your return on time, the Canada Revenue Agency (CRA) will start to impose some ugly late fees that will add to your funds owing. Currently, the late fee is five per cent on the previous year’s balance that you owe. Then, for up to 12 months after that, an extra one per cent will be added on for each full month that you file beyond the due date.
For example, say you owe $5,000, but you file your taxes two months late. That means you owe the 5% late penalty + 2% for the two months you filed after the deadline, which adds another $350 to your tax bill.
The pinch is even harder if you’ve received a late-filing penalty for the last three years and the CRA has issued a formal demand for your return. In that case, you’ll get hit with a penalty of 10% on your total balance owing, plus another 2% for every full month beyond the due date for up to 20 months.
As if that wasn’t enough, the CRA also charges interest – compounded daily – on your overdue taxes. Obviously, the longer your drag your feet, the more you’ll end up owing.
What’s the worst-case scenario if you don’t file your taxes on time? Even if you don’t think you owe any money, the CRA still keeps track. You could be convicted of tax evasion – which means court-imposed fines, a criminal record, and even jail time. In the short term, you could also end up losing your eligibility for certain government benefits, like the Child Tax Benefit.
There’s Also Good News!
Once you file, you will receive retroactive pay on any missed benefits (like GST/HST rebates, Child Tax Benefit etc), and it’s possible you’ve paid too much tax over the years and will get a refund. Just one more reason (the best reason of all) to get that return in on time.
How to File a Late Tax Return
The CRA gives you up to 10 years to file your taxes, but anything prior to 2017 cannot be done online via Netfile and will require a paper return. The agency suggests that you start by filing your oldest return first, so you can take advantage of any amounts that carry-over from the previous year.
If your return is under a year old, then you can file it just as you normally would by mailing it in or using Netfile. However, if your taxes are older than a year, you might want to take advantage of the CRA’s Voluntary Disclosure Program (VDP).
The VDP offers a “do-over”, allowing you to file old returns or correct your taxes from years’ past. If the CRA hasn’t contacted you to file your return yet and you are accepted into the program, you will be required to pay the taxes you owe for all outstanding years, plus any applicable interest — but without the fear of late penalties or potential prosecution.
On the other hand, should the CRA suspect that you avoided your tax obligations on purpose, you will not be privy to the same relief as those who just made an honest mistake.
What if I Can’t Afford My Tax Debt?
One reason a lot of people stall to file their taxes is because they know they will be faced with a hefty tax bill. Regardless, waiting to file only adds to your late fees, thereby increasing your debt. And if you wait too long, you could be accused of tax evasion. Unfortunately, trying to negotiate a payment plan with the CRA can be especially frustrating.
After the CRA takes your income, expenses, and assets into consideration, they will design a payment plan that prioritizes your debt to them above all else. As a result, it might be more challenging to repay your other debts or sustain a comfortable lifestyle. This is where it’s best to invite some experts on board who can help you navigate the CRA’s process.
Why Should I Work with an Accountant?
If you haven’t filed for several years it can be intimidating trying to navigate years of paper filing, trying to find old T4s and figuring out where to start. Accountants are experts in tax and know exactly what’s needed to get you set up, filed, and back on track with the CRA.
And you owe money, it’s always smart to have some professional support on your team.
Yes, We Can Help!
If you’re facing the daunting task of filing years of taxes, we invite you to contact us to determine your best course of action.
Letting your taxes hang over your head is no way to be. Let us help you get your return resolved for a well-deserved sense of mental freedom.