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Preventive Measures to Avoid Outstanding Tax Returns

Do you tend to put things off to the last minute? Procrastination often leads to missed deadlines as life always gets busy, and filing taxes can slip through the cracks. Or maybe you have a complex tax situation, like multiple income sources, investments, or business activities. Often, significant life changes, like marriage, divorce, or the birth of a child, or personal challenges, like an illness or a family emergency, can impact your tax situation or disrupt your filing routine.

Whatever the case may be, unfiled tax returns can jeopardize your future financial health and aren’t great for your current mental health either. To that end, here are some preventative measures you can deploy that, if followed, can help you avoid outstanding tax returns. Below them are the options available to you if you do have unfiled tax returns in Canada.

Understanding the Importance of Timely Tax Filing

Filing your tax return on time is an essential responsibility for all Canadians. Why? Because it’s the law, and, whether you’re an individual or a business owner, there are hefty financial consequences to consider. Let’s break it down:

The Benefits of Filing Your Tax Return on Time

When you file your tax return on time, you’re not just taking care of one of your responsibilities as an entity generating revenue in Canada. You’re also ensuring that you receive the refund, and/or, the benefits and credits you’re entitled to, which can put some money back in your pocket throughout the year. Payouts for the Canada Child Benefit and the GST/HST credit, or provincial ones like Ontario’s Trillium Benefit, for example, can be used for various purposes, from covering bills to saving for your future.

Penalties and Interest for Late Filings

On the flip side, failing to meet the tax filing deadline in Canada comes with financial repercussions and other consequences of outstanding tax returns you should be aware of:

  1. Late-Filing Penalties. The Canada Revenue Agency (CRA) imposes a penalty of 5% of your balance owing on the due date, plus an additional 1% for each full month your return is late, up to a maximum of 12 months. If you have a history of repeated late filings, this penalty can increase to 10% of your balance owing.
  2. Interest Charges. In addition to penalties, interest accumulates daily on any unpaid tax amounts, including both the balance owing and any penalties incurred. The CRA’s prescribed interest rates can change quarterly, so it’s important to check the current rate on their website.
  3. Loss of Refunds and Credits. Late filing can also delay any tax refunds you’re entitled to receive, as well as interrupt government benefits and credits.

Other Consequences of Outstanding Tax Returns

And that’s not all. Unfiled tax returns can lead to other, more severe, consequences of outstanding tax returns. The Canada Revenue Agency (CRA) can take legal actions to recover unpaid taxes, including garnishing wages or bank accounts or putting a lien on or seizing property. Persistent non-compliance may even result in criminal charges.

In essence, filing your tax return on time is more than just following the rules; it’s about safeguarding your financial well-being, securing the benefits you deserve, and keeping you out of legal hot water.

An accountant consults clients about their unfiled tax returns in his office.

Preventive Measures to Avoid Outstanding Tax Returns

Now that we’ve covered why timely filing is essential, let’s look into practical steps to stay on track. Here are the preventive measures you should consider to help you avoid accumulating unfiled tax returns:

A. Staying Informed and Organized:

  • Know Your Deadlines. For most individuals, the deadline to file your tax return is April 30th. If you or your spouse or common-law partner are self-employed, the deadline is June 15th, but any balance owing is still due by April 30th to avoid interest charges. For those with incorporated businesses, the filing deadline is six months after the end of the business’s fiscal year. However, all corporate taxes owed are due three months after the fiscal year-end.
  • Use Technology. Many online tools and tax software are available to help simplify the process. Utilizing these resources can make tax preparation less daunting.
  • Keep Proper Records. Maintain organized and up-to-date records of your income, expenses, and deductions. Having everything in one place and keeping your books updated makes tax filing more manageable.

B. Addressing Complex Tax Situations:

  • Seek Professional Assistance. If your tax situation is intricate, consider enlisting the help of Faris CPA. We can ensure you maximize your deductions and credits while complying with tax laws, giving you peace of mind and offsetting the cost of our services.

By understanding the deadlines and implementing these preventive measures, you can significantly reduce the likelihood of having outstanding tax returns. Being proactive and organized when it comes to your taxes ensures a smoother financial journey and helps you avoid unnecessary penalties and interest charges.

Tips for Filing Outstanding Tax Returns

Here are some practical tips to help you get on the right track if you’ve fallen behind and have one or more unfiled tax returns.

Consult a CPA About the Voluntary Disclosure Program (VDP)

The Voluntary Disclosure Program (VDP) is a valuable resource provided by the CRA for individuals and businesses looking to rectify past tax errors or omissions without facing penalties or prosecution. The VDP consists of two streams:

The General Program Stream

    • The General Program Stream is designed for individuals or businesses who want to correct their tax affairs, including unfiled tax returns, unreported income, or incorrect deductions. Under this stream, the CRA reviews your disclosure and may grant relief from penalties and potential prosecution.

The Limited Program Stream

    • The Limited Program Stream is more specific in its scope. It is intended for individuals or businesses with major non-compliance issues, such as situations involving large amounts of undisclosed income or complex offshore holdings. While the Limited Program Stream offers relief from criminal prosecution, it does not provide relief from all penalties. However, interest charges may be partially waived.

Note the difference in the severity of non-compliance and the level of relief granted between the two streams. The General Program Stream is typically more accessible and forgiving, making it suitable for a wide range of cases. In contrast, the Limited Program Stream is reserved for more serious non-compliance situations.

This is why it’s advisable to consult with voluntary disclosure experts for advice on your application to CRA’s VDP.

Wrapping Up

Timely filing of tax returns is paramount to avoid legal and financial consequences. Take proactive steps to address outstanding tax returns and consider consulting Faris CPA for expert guidance. Act now to avoid having unfiled tax returns, secure your financial well-being, and ensure compliance with your tax obligations.

About the Author

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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.

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