Tax Returns - Due Dates and Lateness
Individuals receiving any form of income are required by law to file an income tax return. Canadians report and pay tax on worldwide income. Where a tax treaty exists, credit is given for the foreign tax paid. Individual returns must be filed and any tax due must be paid by April 30th. Self-employed individuals may file by no later than June 15th but any tax payable must be paid by April 30th.Individuals with no income do not have to file a return but certain credits and payments such as GST credit and Trillium Benefit are only paid when a return has been filed.
Slips (T3, T4, T5 etc.)
CRA gets a copy of every slip you are given or sent. They therefore know if you have failed to report all this type of income. After returns have been assessed, returns go to the Matching Section where they are reviewed to see if all slips have been included. A first mistake is forgiven but all subsequent failures are penalised. Self-employed generally do not have slips. Most of their income comes from a statement of income and expenses.CRA is increasingly auditing these returns to ensure that the expenses claimed are supported by invoices/receipts and that they pertain to the business. The taxpayer is responsible for filing accurate and honest returns. Tax cheats are being investigated and penalised.Another aspect is whether or not it is a real “business” or a means of reducing income from other sources (i.e. slips). CRA only allows expenses that are used to earn a business income. They consider the ‘acid test’ of a “business” to be an enterprise being carried on to earn a profit. If no profit is in evidence, the business may be a hobby and all expenses are disallowed. CRA does not approve of business losses being used to reduce other income. These will almost certainly be reviewed if not audited.
Late filing/failing to file
There are both penalties and interest for late returns. Penalties are typically 5% and 1% per month. After filing late for 4 years the penalties increase to 10% of the balance owing for the current year and 2% of the balance per month. From May 1, 2017 CRA has been empowered to charge compound daily interest. Interest on overdue amounts has heretofore been charged at 5% per annum. CRA has been increasing its vigilance and diligence in its collection efforts. The willingness to make payment plans and accommodations has gone. The new CRA is harsh and unyielding. Failure to pay will result in wages being garnisheed, bank accounts being swept and liens placed on houses. CRA will move quickly to obtain a judgment against tax debtors meaning credit ratings are ruined.
There is only one solution. File on time always. Once you get behind, the amount owing keeps mounting and it keeps attracting interest and penalties. Once you owe $3,000 or more in a tax year you are required to pay instalments during the following year. The same is true for annual HST filers. HST instalments are one quarter of the amount for the prior year’s total. These rules are in place to ensure that the taxpayer does not have too much to pay at the end of the year and therefore has a chance to pay the balance due (after instalments) on time. The requirement to pay instalments is enforceable. If they are not made, interest is exigible on the amount of the instalment for the period of time not made.
Using tax preparers
Tax preparers rely on the taxpayer to present neat and accurate records. Loose papers and bags of receipts are not appreciated by tax preparers during April. There is insufficient time to sort and add these. The taxpayer remains 100% responsible for the accuracy and completeness of their returns. The accuracy of any numbers and totals provided to the tax preparer are the responsibility of the client alone. If you are audited, it is not worth trying to blame the tax preparer. Some taxpayers are chronic last minute actors; Christmas shopping, RRSPs, taxes. If you leave your taxes for the last 2 weeks it is highly likely that the tax preparer will not be able to do them by April 30. If you wish to use a tax preparer to do your taxes (always a good idea) you need to get them in as early as possible. It is just a fact of life that you must wait for T3 slips. Although these should be in your hands by March 31, some trusts/investment firms are late – issuing these slips in the first 2 weeks of April. Dealing with these returns late in April is why we have limited time for those who could have brought their self-employment numbers in in January.You can follow and like us on Facebook as Mount Albert Tax Company or Holland Landing Tax Company, and you can connect with us on LinkedIn. Until next time, Ian