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CRA & Unfiled Tax Returns

Unfiled tax returns are a common problem for individuals, corporations, trusts and estates. A tax accountant can help you deal with unfiled tax returns and even avoid penalties and prosecution through the Voluntary Disclosure Program.

Unfiled tax returns should be addressed sooner rather than later so that you can get up to speed and avoid additional consequences. Contact the professionals at Faris CPA today for an assessment. Call 1 (844) 340-5771 or use the contact form to get started.

Get Your Tax Problem Solved

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Tax Return Obligations

Canada has a self-reporting tax system. This means that it is each taxable entity that is required to report its income to the government by filing the appropriate tax return.  These returns include a T1 General for individual taxpayers, a T2 Return for corporate taxpayers, and a T3 return for trusts.  There are many other types of returns that apply to particular circumstances. Talk to your tax expert to see what your return filing obligations are.

Individuals

For individuals, the tax year is the calendar year (January 1 to December 31).  Individuals have to file a tax return (T1 Return), for the preceding tax year, either on or before April 30th, if they are employees, or on or before June 15th if you or your spouse earned business income.  If the individual taxpayer doesn’t have any Part I tax payable for the preceding year, then no T1 needs to be filed. Most people interpret this exemption as no balance being due (for example, if your employer has withheld enough tax from your paycheques and you don’t owe any more or are entitled to a refund).  However, the requirement is that you have file a return IF Part I tax is payable (whether paid or not).  Therefore, individuals earning income above the basic exemption threshold have to file a tax return annually.  There are special rules for deceased individuals in their year of death, as well as for their surviving spouses.  These special rules can be complex and it would be best to get the help of a tax expert so you reduce the amount of tax payable.

Trusts

Trusts are also required to file tax returns for each of their tax years (also the Calendar Year). Trustees are required to file a T3 return within 90 days from the end of the tax year. 

Corporations

Corporations can have an off-calendar fiscal year, which also becomes their tax year.  A corporation that is required to file a tax return has to file its T2 return within six months of the end of its fiscal year.  It is important to remember that a return due date may be different from when the balance of taxes is due so as to avoid interest being charged on the balance outstanding.

Unfiled Tax Returns

Unfiled returns or incompletely files returns are a common problem for all types of taxpayers. If you do not file a return as required, the Canada Revenue Agency (CRA) can make a demand that you file your returns.  Alternatively, the CRA can assess you arbitrarily – they will use some method to take a guess at your income, leaving you with the almost impossible task of having to prove them wrong.  Unlike in most cases, when it comes to taxes, it is the taxpayer’s obligation to prove the CRA wrong, not for the CRA to prove that they are right.  To avoid the burden that comes with unfiled returns and the CRAs often draconian actions in relation to them, take unfiled returns very seriously.  It can be overwhelming dealing with returns for a number of years, but that is what a tax expert is here for – to lend you a hand and take on some of the burden of getting yourself current with your tax filing obligations.

If you fail to file your return on time, you will be subject to late filing penalties.  The penalty is 5% of the balance owing PLUS 1% of the balance owning for each full calendar month your return is late (to a maximum of 12 months). If you’ve previously been charged late filing penalties in one of the past three tax years, the penalty doubles to 10% of the balance owing PLUS 2% of the balance owing for each full calendar month the return is late (up to a maximum of 20 months).  In addition to the penalties, if you have a balance owing, you will also have to pay compound interest on the balance outstanding for as long as the balance has not been paid in full.  Interest and penalties can quickly add up to exceed the amount of tax owing, sometimes resulting in people losing their possessions or having to file for bankruptcy.  You can see how important it is to get help to quickly become current in your filings if you are delinquent.

CRA Voluntary Disclosure

There are many sources of information that the CRA has access to, allowing them to find people who are required to but have failed to file tax returns.  If you have unfiled returns, or if you have filed returns but either not reported all income you were required to report or have misreported amounts, you may be eligible for the CRA’s Voluntary Disclosure Program (VDP).  The VDP is a special program that provides taxpayers with an opportunity to come clean or become current with the incentive that, if you meet the criteria, you don’t need to pay penalties, get to cancel some of the interest, and won’t face criminal prosecution.  The monetary savings can be huge.  Time is of the essence when it comes to applying to the VDP because one of the criteria is that the disclosure is “Voluntary”. This means that you cannot have been approached by the CRA about the return or part of the return you need correct.  There are other criteria that are more technical and complex, making a tax expert an invaluable resource.

Contact Faris CPA for a Consultation Today

Not only can you save significant amounts of money and avoid criminal prosecution by using the VDP, but becoming current or staying current with your tax filings is an important part of avoiding a tax audit by the CRA.  Whether you are under audit, or you are trying to become current to avoid or prevent an audit, you should get the help of a Chartered Professional Accountant (CPA) who is a tax expert.  The risks and cost of not getting your filings right or not making sure you meet the VDP requirements can be large and are often far outweighed by the cost of having an expert navigate the tax rules for you.

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FAQS

How long can you go without filing taxes in Canada?

You are not supposed to go any amount of time past the tax filing deadline without submitting your taxes. However, the CRA can view your unfiled returns as one way to start charging penalties and interest or even audit you.

Can you file your tax return without your T4 slip?

Some of the information you need to file your tax returns can be found without a T4 if you look online. However, you should also contact the CRA if you need to file your taxes and don’t have your T4 slip so you can walk through your options.

Can I file 3 years of taxes at once?

If you have unfiled tax returns, it is recommended that you file all the overdue tax returns at once so that you can get on track with a payment plan and start making payments towards the overdue amounts. If this means that you need to file three years at once, then you want to get on top of these back tax returns immediately with the help of a professional.

How do I find out if I have unfiled tax returns?

Should you want to find out if you have unfiled tax returns, first check your own records. Often, you will be able to see which years you have missed. Once you have done that it is wise to seek the help of a fully trained tax professional. You will have to pay the taxes that you owe, which can be expensive. But with the help of an experienced tax specialist that bill can be reduced.

What happens if you have unfiled tax returns?

If you have unfiled tax returns, you will be asked to pay the tax you owe, interest and will usually have to pay a fine. Most tax authorities now have systems that automatically highlight those who have not filed a return. Some authorities run voluntary declaration schemes to encourage more people to pay their back taxes. Often, using them will save you a lot of money. But, you should seek advice from a tax professional before using them.

How do I fix unfiled taxes?

You can fix unfiled taxes, by contacting the authorities and paying what you owe. It is a complex process that needs to be approached carefully. You may be required to pay late payment fines and interest on the tax you did not pay. Plus, you will have to pay the tax you owe. It is wise to use a tax professional to help you to put things right. Their understanding of the system will usually help to minimize the bill.

Testimonial

“Need someone who can talk CRA and walk tax law stuff? I did. After an expensive year of trying to resolve a CRA issue on my own – I was very happy to have Sam Faris in the ring with me. I am confident that no lawyer or CA could have prepared a stronger case report to support my appeal. Sam approached my case professionally and skillfully from all angles possible and personally made sure I understood exactly what was going on; every step of the way.”

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Pro Tip

ACCESSING THE SMALL BUSINESS DEDUCTION IN YOUR BUSINESS

The Small Business Deduction gives businesses a tax deduction on the first $500,000 of income. This saves an eligible corporation around up to $50,000 in income taxes. There are a number of conditions that have to be met to be eligible for this deduction.