Achi news desk-
Are you behind on filing your tax returns?
For those of you who have been procrastinating while telling yourself you’ll get to it eventually, the arrival of tax season will probably bring you avoidance – and the stress that comes with it in its wake – to the forefront.
The confusion of where to start, combined with the fear of potential penalties and the reality that you are facing another year’s tax return can make the situation stressful, to say the least.
First, take a deep breath. You’re not the only one facing this problem, and you won’t be sent to jail for missing some tax returns. The CRA has implemented a system for taxpayers to be able to catch up with their tax returns and take care of previous tax debts (back taxes) if they are due.
Whether you’re just a year or several years behind, here’s where to start if you haven’t filed taxes in a while.
Getting back on track with your taxes: step by step
The tax deadline is April 30. This means there is still time to file your taxes, so get on with it if you haven’t already.
Even if you missed tax returns last year or previous years, get off to a good start this year and file your taxes for this year. Then, go back and deal with previous years’ tax returns.
Here’s a quick step-by-step guide on how to get back on track with your taxes.
1. Collect all your tax documents
First, collect all the tax documents you have. This includes T4 employment slips, T4A self-employment papers, and records of any other income you may have earned, including but not limited to:
- Investments (stocks, GICs, crypto, etc.)
- Income from rental property
- Side hustle income
- Gambling income
- Money earned outside the country
2. Consider consulting a tax professional
If you have a complex tax situation, such as self-employment, investment income, or significant life changes, consulting a tax professional is a good idea.
A professional can navigate complexities, identify applicable deductions and credits, minimize potential penalties, and help negotiate with the CRA. There is no strict number of years lost that mandates professional advice, but if your tax situation includes multiple unfiled returns and you suspect you owe money to the CRA, it is possible that professional guidance can reduce your tax liability, and at least ensure that you are not. t break any rules.
3. File your tax returns year after year
Now that you have all your information in order, along with annual income and itemized deductions, it’s time to file your tax returns retroactively, year after year.
Depending on how far back you need to file, electronic filing may be an option for more recent years, which can speed up the processing of your returns. For older years, you may need to file a paper.
One important thing to mention here is that you can also file for tax credits and deductions (refundable and non-refundable) retroactively. In a best case scenario, you could end up being paid by the CRA if you were owed a refund on taxes for previous years, or use this credit to reduce your overall tax debt to the CRA . This is an area where a tax professional could come in handy.
4. Negotiate a payment plan with the CRA
After filing all of your missed tax returns with the CRA, you’ll get a final balance that will reflect taxes owed for those missed years as well as any late filing penalties. At this point, it’s time to discuss a payment plan with the CRA. I have used the call line dozens of times and I recommend calling them directly as the agents are very helpful and professional.
The CRA will take your current income and expenses into account when deciding your repayment plan, so you can tackle your debt gradually over time.
Are there penalties for filing taxes late?
To encourage taxpayers to file their taxes in a timely manner, the CRA imposes penalties on late filers.
If you miss the April 30 tax filing due date, the CRA will impose a late filing penalty of 5 percent of the tax balance you owe. For each additional month you file late, you will be required to pay an additional 1 percent.
For example, if you file your taxes in May, you will pay a late fee of 5 percent. By June, that will increase to 6 per cent, 7 per cent in July, 8 per cent in August, and so on, to a maximum of 12 months.
So, theoretically, if you owe the CRA $1,000 and miss the April 30 deadline, you will automatically be required to pay an additional $50 (5 percent of $1,000) if you file in May.
If you are a repeat offender and filed late in 2020, 2021, or 2022, then the CRA will impose a higher late filing fee of 10 percent, and tack on an additional 2 percent for each month you file late, up to a maximum of 20 months.
Missing tax returns and paying taxes late can also affect your eligibility for future tax-related benefits.
What if I don’t owe the CRA?
Even if you have earned no income at all, the CRA still requires you to file a tax return. This tax data is used to create policies for the whole country, including providing support to low income households. Whether you like it or not, it is your civic duty.
That said, after filing their taxes, many Canadians find out that they don’t owe any taxes. In some cases, they may even be owed a tax return by the CRA.
This is the good news. If your Tax Return states that you owe nothing or that a Tax Return is due, then you don’t have to worry about any penalties for late submission.
However, you are still required to file your return. Never assume you don’t owe anything.
CRA Voluntary Disclosure Program (VDP)
When it comes to your taxes, it’s always best to be proactive.
If you think you may have forgotten (or deliberately omitted) items in your previous tax returns, the CRA gives taxpayers the opportunity to come forward and amend the matter through the Voluntary Disclosure Program (VDP), before being the CRA must reach out to them.
In some cases, the CRA may even offer relief or reduce the penalty that you might have been required to pay if the CRA had approached you about the matter first.
Can tax debt be forgiven in Canada?
The CRA doesn’t just forgive a tax debt and remove it from the records. Instead, the CRA offers payment plans so you can gradually get on top of your taxes and pay them off over time.
In some rare cases, the CRA may offer relief (not full forgiveness) on a case-by-case basis. You will need to contact the CRA directly to arrange a consultation. Likewise, you can also apply to waive late filing penalties.
Create a system so you don’t fall behind
After catching up on previous years’ tax returns, it’s important to create a plan to stay on top of your taxes in the future. For some, this may mean staying more organised. For others, it might mean committing to filing your taxes earlier in the year rather than waiting until the last minute.
Whatever the case, catching up on taxes is not a headache you want to face every year.
If you’re left with debt that you’re not quite sure how to take care of, here are some tips to help you overcome your debt faster.
Christopher Liew is a CFA Charterholder and former financial adviser. He writes personal finance tips for thousands of Canadian daily readers on his website Wealth Awesome.
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