It’s simply not worth the unnecessary stress and worry that are a part of not dealing with unfiled tax returns when unburdening yourself is as simple as emailing or calling an experienced, reputable tax professional.
As you’ll soon discover, filing unfiled tax returns in Canada isn’t scary or stressful with the right guidance and advocacy from a tax expert who is sincerely on your side.
What Happens if I Have Years of Unfiled Tax Returns in Canada?
The Canada Revenue Agency (CRA) takes tax compliance seriously and deploys sophisticated programs and systems to monitor and enforce tax filing requirements. And just because you may have years of unfiled tax returns and haven’t heard from them, that doesn’t mean that they’re unaware of your unfiled returns.
In fact, the longer it’s been, the greater risk of significant consequences of unfiled tax returns. These can include:
- Monetary Penalties. The late-filing penalty is 5% of the balance owing, plus an additional 1% for each full month the return is overdue, up to a maximum of 12 months. This penalty can accumulate quickly, resulting in a substantial financial burden.
- Interest Charges. In addition to penalties, the CRA also applies interest charges on any outstanding balances owed. The interest compounds daily, and the rate can change quarterly. This means that the longer you delay filing your tax returns, the more interest you will accrue on unpaid amounts.
- Loss of Benefits and Credits. The Canada Child Benefit, Goods and Services Tax/Harmonized Sales Tax Credit, and certain provincial credits may be withheld or discontinued if you have unfiled tax returns. This can have a significant impact on your financial situation and the support you receive from the government.
- Legal Hot Water. The CRA has the authority to pursue legal action against individuals who repeatedly fail to file their tax returns. This can result in further fines, responding to court proceedings, and even imprisonment in severe cases.
- Denied Access to Taxpayer Relief Provisions. Filing tax returns is a prerequisite for accessing taxpayer relief provisions. These provisions include the ability to request interest and penalty relief, make arrangements for payment plans, or negotiate settlements.
If you do have years of unfiled tax returns, you may still have a relatively painless option for rectifying your non-compliance if you qualify for the CRA voluntary disclosure program.
The VDP allows taxpayers to submit their unfiled returns and correct any errors or omissions without facing severe penalties or prosecution. Eligible taxpayers can even apply for interest relief on late payments.
The operative word here, however, is voluntary, which means you must file your voluntary disclosure application before the CRA contacts you regarding your tax reporting deficiencies. And because you can’t afford to make a mistake during the disclosure process, it’s essential you consult one of the best tax accountants in Toronto to help you put together a successful application.
The Benefits of Seeking Professional CPA Help Who Provides Unfiled Tax Return Services
Tax professionals stay updated on the latest changes in tax legislation and have a deep understanding of the ins and outs involved with filing tax returns accurately and optimally.
One of the primary advantages of having a tax professional handle unfiled returns is their ability to first identify potential exemptions, deductions, credits, and refunds that you may have missed and which can significantly alter your tax obligations and potential penalties.
Tax professionals also possess the skills, experience, and accreditation required to handle any correspondence or audits from the CRA. If the CRA decides to audit your unfiled tax returns, having a tax professional by your side can be invaluable. They can represent you during the audit process, ensuring that your rights are protected and advocating for your best interests. Their experience dealing with the CRA allows them to navigate through audits smoothly and effectively.
One more note on this issue, a significant benefit of hiring a tax professional is the peace of mind they provide. Unfiled tax returns can be a source of constant stress and anxiety. By entrusting your tax matters to a professional, you can alleviate yourself of this burden and focus on happier aspects of your life.
How to File Unfiled Tax Returns in Canada
1. Gather the Necessary Information and Documentation
This includes gathering your income statements, expense receipts, and any other relevant financial records for the years in question. The accuracy and completeness of this information are essential to ensure the correct filing of your tax returns and a successful application for relief and forgiveness through the VDP, if applicable.
2. Assess Your Tax Situation
You must next determine the number of unfiled tax returns you need to submit and organize them chronologically. This will help you tackle the process systematically and address each year’s filing requirements more accurately.
3. Prepare and Submit Your Returns
It is definitely advisable to consult a tax professional during this stage in the process before you prepare and submit your unfiled tax returns. They will assist you in accurately completing all necessary forms and schedules for each year and optimizing relevant deductions, credits, or refunds. They can also ensure that all required supporting documentation is attached to the tax returns – that are filed on time.
4. Address Outstanding Tax Liabilities
In many cases, unfiled tax returns are accompanied by outstanding tax liabilities, penalties, or interest charges. This is where having a Certified Public Accountant (CPA) who regularly interacts with the CRA can be highly beneficial. A CPA with a history of successfully dealing with the CRA can negotiate penalty payment amounts and terms on your behalf.
Their training and regular interactions with the CRA give them a recent, comprehensive understanding of its auditing and investigations processes and the criteria for determining tax violations, relief, and penalty amounts that work for you. They can also help establish payment plans or negotiate installment agreements with the CRA that fit within your financial circumstances.
Professional Tax Help That Pays for Itself When You Have Unfiled Tax Returns in Canada
Working with a CPA is reasonably the best way to put yourself in the best possible position to address outstanding, unfiled tax returns, minimize any financial burdens, and ensure a successful end to the journey back to tax compliance.