As a taxpayer in Canada, it can be tempting to postpone the inevitable. The thought of sifting through receipts, calculating income and expenses, and ensuring all the numbers add up can be daunting. However, having outstanding tax returns or unfiled tax returns can lead to a host of problems.
While this post will explain the most common risks associated with not filing tax returns on time, if you do have an outstanding tax return(s), always speak to an expert at the best CPA firm in Toronto as the best approach for dealing with any unfiled tax returns depends on the specific circumstances unique to your situation.
Know When to File to Avoid Having an Outstanding Tax Return
The deadlines for filing tax returns in Canada are as follows:
- March 1: Deadline to contribute to an RRSP, a PRPP, or an SPP.
- April 30: This is the deadline to file your taxes. However, if April 30 falls on a weekend or holiday, the deadline is extended to the next business day.
- June 15, 2023: This is the deadline to file your taxes if you or your spouse or common-law partner are self-employed.
If you have a balance owing, you must pay it on or before April 30. Please note that these dates are current at the time of this writing. Always refer to the CRA website for the most recent tax filing deadlines. For Canadian businesses, these tax filing deadlines are crucial:
- Corporation Income Tax Return: You should file your return within six months of the end of each tax year. The tax year of a corporation is its fiscal period. When the corporation’s tax year ends on the last day of a month, file the return by the last day of the sixth month after the end of the tax year. When the last day of the tax year is not the last day of a month, file the return by the same day of the sixth month after the end of the tax year.
Of course, as a business, having unfiled tax returns includes reporting, filing, and remitting GST/HST on time; not doing so can result in similar penalties as an outstanding tax return.
Filing and Payment Deadlines for GST/HST
For self-employed individuals and businesses required to charge and remit GST or HST, the GST/HST filing and payment deadlines in Canada are as follows:
- Monthly Reporting Period. The filing and payment deadline is one month after the end of the reporting period. For example, if the reporting period ends on July 31, the filing and payment deadline would be August 31.
- Quarterly Reporting Period. The filing and payment deadline is also one month after the end of the reporting period. For example, if the reporting period ends on March 31, the filing and payment deadline would be April 30.
- Annual Reporting Period (except for individuals with a December 31 fiscal year-end and business income for income tax purposes). The filing and payment deadline is three months after the fiscal year-end. For example, if the reporting period ends on August 31, the filing and payment deadline would be November 30.
- Annual Reporting Period (individuals with a December 31 fiscal year-end and business income for income tax purposes) The filing deadline is June 15, but the payment deadline is April 3012.
It’s always a good idea to file your return early or before the due date to avoid being charged interest and penalties.
The Financial Cost of Outstanding Tax Returns
- Penalties and Interest. The Canada Revenue Agency (CRA) doesn’t take kindly to unfiled tax returns. If you owe money and don’t file your return by the deadline, the CRA will charge a late-filing penalty. This penalty is 5% of your balance owing, plus 1% of the balance owing for each full month your return is late, up to 12 months. And that’s just the beginning. Interest is also charged on the outstanding amount, including the late filing penalty.
- Loss of Benefits. If you have an unfiled tax return, you might lose out on government benefits. The CRA determines your eligibility for benefits such as the Canada Child Benefit or the Goods and Services Tax/Harmonized Sales Tax (GST/HST) credit based on your filed tax information. By not submitting your return, you could be leaving money on the table.
- Loss of Refunds. If the CRA owes you money, they won’t send you a refund until your outstanding tax returns are filed. It means that by delaying or not submitting, you’re essentially giving the government an interest-free loan.
Risks Associated with Unfiled Tax Returns
Other consequences of unfiled tax returns can include:
- CRA Assessment. If the CRA notices that you have unfiled tax returns, they might decide to file a return on your behalf. This is known as a “notional assessment.” The problem? They will estimate your income without considering all your available credits or deductions. As a result, you might end up owing more than if you had filed yourself.
- Legal Repercussions. Believe it or not, consistently not filing or having outstanding tax returns can be considered tax evasion. The penalties for tax evasion can be severe, including hefty fines and, in some cases, imprisonment.
- Loss of Financial Flexibility. Unfiled tax returns can impact your credit score. If the CRA decides to take collection action against you for unpaid taxes, it will appear on your credit report. This can hinder your ability to secure loans, mortgages, or even rent properties.
Navigating the Consequences of Outstanding Tax Returns
- Getting Back on Track. If you have outstanding tax returns, it’s essential to address the issue promptly. Start by gathering all relevant financial information and paperwork. If you’re missing information, the CRA can provide copies of slips and other details. Consider seeking help from a tax professional if you’re unsure about the process.
- Payment Plans. If you’re concerned about a significant bill from the CRA due to outstanding tax returns, remember that the CRA often allows taxpayers to set up payment plans. By making consistent monthly payments, you can slowly reduce your debt without incurring additional penalties.
- Voluntary Disclosure Program. If you’ve made an error on a previously filed return or have unfiled tax returns, the CRA’s Voluntary Disclosure Program (VDP) might be an option. It allows taxpayers to come forward to correct inaccurate or incomplete information or to disclose information they haven’t reported. In return, they may receive relief from penalties or prosecution.
Tackling the Fear of Unfiled Tax Returns
The idea of dealing with unfiled tax returns can be intimidating, but the risks of letting them remain outstanding are even more daunting. Taking proactive steps is crucial. Whether you choose to tackle the task yourself or hire a professional, addressing the issue head-on will give you peace of mind and keep you in good standing with the CRA.