Falling behind on tax filing is more common than you might think. Whether it’s health or family issues, forgetfulness, fear of a hefty tax bill, travelling abroad, or procrastination, if you have two or more outstanding tax returns, getting them filed ASAP must take precedence over everything that’s not an emergency.
The Canada Revenue Agency (CRA) charges interest and late-filing penalties, worsening the situation with each passing day. While the prospect of filing multiple years of taxes may seem daunting, the benefits far outweigh the temporary discomfort of the process. And with expert tax guidance, that process gets exponentially easier. Whatever the reason for having multiple unfiled tax returns, once they’re filed, you’ll feel 1000% better – even if you owe money on taxes. Now, you’re able to claim credits and benefits (which can be used to offset taxes owed), and you’ll have that gigantic weight lifted off your shoulders.
With the right approach, which we’ll cover in the following sections, you can bring your tax situation up to date and feel a lot more confident about your financial situation.
Gather the Necessary Information
Before you begin filing tax returns in Canada, the first step is to gather all related documentation and, if it’s not already, separate it by year, then organize it by type. This process is not just about making it easier to fill out your returns; it also helps jog your memory and inevitably reminds you of other documents you need but haven’t gathered. Here’s a checklist of common tax-related ‘paperwork’ you’ll need:
- T4 slips (employment income)
- T5 slips (investment income)
- T4A slips (pension, retirement, annuity, or other income)
- T4E slip (Employment Insurance benefits)
- T4RSP or T4RIF slips (RRSP or RRIF income)
- T2202A form (tuition and education amounts)
- Receipts for charitable donations and expenses you are eligible to claim
- Bills for eligible expenses
- Medical expense receipts
- Childcare expense receipts
- Property tax or rent receipts
- T2125 form (if self-employed)
- Notice of Assessment from the last year you filed a tax return
Note that some of these documents, like a T4, might be filed directly to the CRA by the issuer. You’ll have to log in to your CRA account to access them. If you’re missing any documents, contact your employers, financial institutions, or the CRA to obtain copies. Also, keep in mind that you need to have these documents readily available for at least 6 years as per CRA requirements.
The Filing Process
Breaking the filing process for multiple returns down into manageable steps can make it less daunting and a lot smoother. The key is to approach each year methodically and in chronological order.
Obtaining tax forms for previous years
First, you’ll need to obtain the correct tax forms for each year you need to file. The CRA provides access to forms from previous years on this page (click the “Previous years: Income tax packages” button on the right side about halfway down the page.) You must use the forms specific to each tax year, as tax laws and forms can change annually.
Using tax software vs. paper filing
There are two main options for filing one or multiple tax returns: tax software or filling out and mailing paper packages. Tax software can be incredibly helpful, especially when dealing with multiple years. Many popular Canadian tax software programs offer versions from previous years, guide you through the process, have accuracy checkers, and make automatic calculations. Some will even populate fields with information from tax forms submitted to the CRA. Just be sure to use NETFILE-certified software.
If you prefer paper filing or if electronic filing isn’t available on a tax year for which you need to file a return, if you can find paper tax packages for the years you need to file, you can still do it the old-fashioned way.
Chronological order: Start with the earliest unfiled year
Regardless of which method you choose, it’s crucial to file your returns in chronological order, starting with the earliest unfiled year. This approach is because each tax year can affect the next. For example, certain credits or deductions might carry forward, and your income in one year could impact your eligibility for benefits in the next.
Remember, accuracy is more important than speed. Take your time to ensure each return is as complete and correct as possible. If you find yourself stuck or unsure about certain entries, it may be worth consulting with a tax professional, even if just for a review before submission.
Finally, make copies of all returns and supporting documents before sending them to the CRA. This precaution can be invaluable if questions arise later or if any documents get lost in transit.
Special Considerations
When filing multiple years of tax returns, there are a few considerations to keep in mind that only come into play if you fail to successfully meet the tax filing deadline.
The Voluntary Disclosure Program (VDP)
First, it’s important to be aware of the Voluntary Disclosure Program (VDP) offered by the CRA. This program is designed for taxpayers who failed to report income or have made errors in past returns and want to correct inaccurate or incomplete information. If your application to the VDP is accepted, you may be eligible for relief from prosecution and penalties. However, you’ll still be responsible for paying any taxes owing plus interest.
Because of the stakes involved, it’s always best to consult voluntary disclosure experts before applying to give yourself the best chance of acceptance and negotiate repayment requirements that are best for you.
Dealing with potential penalties and interest
The CRA charges late-filing penalties and interest on unpaid taxes. For each month your return is late, the CRA charges a penalty of 5% of the balance owing, plus 1% for each full month the return is late, up to a maximum of 12 months. Interest, which is compounded daily, is also charged on both the unpaid tax and the penalties. The CRA’s interest rate changes every quarter, so make sure you’re applying the correct rate.
It’s worth noting that in some cases, you may be able to request relief from penalties and interest through the CRA’s Taxpayer Relief Provisions. This is typically considered in cases of extraordinary circumstances, financial hardship, or actions attributable to the CRA.
Handling changes in personal circumstances across years
Another special consideration is how to handle changes in personal circumstances across the unfiled years. Your life situation may have changed over the period you haven’t filed – perhaps you got married, had children, bought a house, or started a business. Each of these life events can have tax implications and may affect your eligibility for various credits and deductions. A few examples of how these changes can impact your tax return include:
- If you’ve moved between provinces during the unfiled years, you’ll need to file provincial returns for each province you lived in, based on your province of residence on December 31 of each tax year. This can affect your tax rates and eligibility for certain provincial credits.
- For those who have lived or worked outside of Canada during the unfiled periods, there are other complexities to consider, like declaring foreign income, claiming foreign tax credits, and potentially filing returns in other countries.
- Lastly, if your unfiled returns span a period where significant tax law changes occurred, you’ll need to ensure you’re applying the correct rules for each specific tax year. Tax laws evolve, and what was allowed in one year may not be in the next.
Navigating these special considerations can be complex, and this is where professional advice becomes invaluable. A tax professional who is experienced in handling multiple-year filings can help you understand these nuances, maximize your benefits, and minimize your potential penalties.
After Filing
Once you’ve submitted your multiple years of tax returns, you might feel a sense of relief, but the process isn’t quite over. Here’s what you can expect and how to handle the next steps.
What to expect after submitting
Processing returns can take several weeks or even months, especially for multiple years filed simultaneously. During this time, it’s important to stay patient and keep an eye on your mail or your CRA online account for any communications.
Dealing with assessments and reassessments
For each tax year you’ve filed, you’ll receive a Notice of Assessment (NOA). This document summarizes your tax situation for that particular year, including your taxable income, tax credits, and whether you owe money or are due a refund. Review each NOA carefully to ensure it aligns with what you submitted. If you disagree with any assessment, you have the right to file an objection within 90 days of the date on the NOA.
In some cases, the CRA may request additional information or documentation to support your returns. If this happens, respond promptly and thoroughly to avoid delays or potential reassessments.
Setting up a payment arrangement if needed
If you’re due refunds for any of the years filed, the CRA will typically issue these after processing all the returns. However, if you owe taxes for other years, the CRA can apply your refunds to these outstanding balances.
If you owe taxes, penalties, and interest and you’re unable to pay the amount owing you can set up a payment arrangement, i.e., a payment plan. When proposing a payment plan, be realistic about what you can afford to pay each month. It’s crucial to stick to any payment plan you agree to with the CRA. Failing to do so can result in legal action or collection proceedings. If your financial situation changes and you can’t make the payments, you can use the CRA website to change the payment arrangement.
Final Thoughts on Filing Multiple Unfiled Tax Returns in Canada
Now that you’re back on track with your taxes, it’s important to stay current. Mark your calendar for next year’s tax deadline, and start organizing your documents early. Consider using a tax preparation checklist to ensure you have all necessary documents ready when it’s time to file.
Remember, filing your taxes annually, even if you don’t owe money or aren’t required to file, can help you access benefits and credits you may be eligible for and prevents you from falling behind again.
