June 1, 2020
At least once a month, I get a call from someone who is wondering what to do if they have not filed a tax return for awhile.
Here are some typical comments I hear:
“Is it a big deal?” (It might be.)
“But I do not owe taxes anyway, so why does it matter?” (How can you be sure if you have not filed your return?)
“The Government won’t notice.” (Cut to me putting palm on forehead.)
In this COVID-19 world, the Federal Government has granted a myriad of filing extensions for individuals, trusts, and corporations (see https://www.canada.ca/en/revenue-agency/campaigns/covid-19-update/covid-19-filing-payment-dates.html for all the details). However, I am still a firm believer in filing tax returns on time wherever possible. In today’s post, I will review the top 5 reasons why you should file your return on time, and what you should do if you have fallen behind.
The Tax Chick Top 5 List – why you should file your returns on time:
Reason #5: If you are entitled to a refund or certain benefit payments (ie, GST Credit, Canada Child Benefit) – getting access to these benefits is predicated on filing your return. (Note that CRA has provided for some exceptions to this rule in light of COVID-19 – see the above noted link for details.)
Reason #4: Avoiding late-filing penalties – If you file late, and you end up owing tax, CRA will charge you a late-filing fee. For the 2019 tax year, the penalty is 5% of what you owe, plus an additional 1% of your balance owing for each month you are late (to a maximum of 12 months).
Reason #3: Start the clock for audits/assessments – As a general rule, CRA is only permitted to audit/reassess you within a certain time period which runs from the date of the original notice of assessment. If you do not file your return, you do not get a notice of assessment, and this time period keeps running! (I will talk in a later post about assessments beyond the statute-barred period.)
Reason #2: Prevent CRA from filing your returns for you – If you fail to file returns for a period of time, you run the risk that CRA will arbitrarily assess you for the year. This means that CRA will decide what you owe and what you should have filed. Your recourse to this is to file an amended return while at the same time objecting to the arbitrary assessment. Much more time consuming and costly than just filing in the first place.
And the number one reason is... (drum roll)….Because it’s the law.
Individuals are required to file a tax return if they owe taxes or fit into a myriad of other circumstances. Corporations are required to file a tax return regardless of whether they owe tax. For more information see:
- Individuals: https://www.canada.ca/en/revenue-agency/services/tax/individuals/topics/about-your-tax-return/you-have-file-a-return.html
- Corporations: https://www.canada.ca/en/revenue-agency/services/tax/businesses/topics/corporations/corporation-income-tax-return.html
Did you know that failure to file a tax return is a form of tax evasion and can attract criminal penalties? More about that in a future blog post…
So what should you do if you have not filed a return? If you have the information necessary to accurately file the returns, either by yourself or with the help of an accountant, take the steps to get the returns filed. The sooner you deal with the issue, the better. However, if you are unsure of where to turn or what options are available to you, do not be afraid to ask for help. A tax professional can help you work through the options that are available to you – including whether you might qualify for taxpayer relief (from interest or penalties), the voluntary disclosure program, and/or a payment plan arrangement with CRA collections.