What you need to know if you’re behind on your taxes
Taxes are like Christmas. Each year the filing date is the exact same – April 30th.
The anticipation builds, albeit negative, but it’s not like tax season is a surprise. The biggest reason I see people skip filing is because they didn’t do it last year…or the year before…or the year before that. So, they are scared to file; much like being scared to go to the doctor for an annual check-up.
The only people licking their chops in this scenario are the accountants and bookkeepers that you will eventually hire to catch you and your late filings up to date. Those tax teams will smell your desperation coming and charge you a premium; unless your accountant has a soft-spot for you.
The 411 on penalties
If you’re late filing and don’t owe any taxes, you won’t pay a penalty to the government.
If you owe money, you’ll be charged penalties. The penalty is 5 percent of your balance owing, plus an additional 1 percent of your balance owing for each month your tax return is late, up to a maximum of 12 months.
But, that’s just for one year. If you’re chronically late in filing the previous three years worth of returns, you’ll be facing a penalty of 10 percent (instead of 5 percent), plus an additional 2 percent (instead of 1 percent) of the balance that you owe for each month your tax return is late for up to a maximum of 20 months.
No money to pay?
Plenty of people are caught in the scenario where they simply don’t have the money to pay the full balance. But, do what you can to at least pay a portion so that you can avoid costly late filing penalties. That means you might have to curb your stuff on Kijiji or work a couple of extra shifts to raise the money.
In certain situations, reasons beyond your control, you can apply to CRA to have your late filing penalties waived. To make an application, complete Form RC4288 (Request for Taxpayer Relief). There is a limitation on how far back you can go to have your late filing penalties waived (maximum of 10 years).
The Best Plan
- Gather up all of your forms (missing forms? Click here).
- Document all relevant information in a spreadsheet (sources of income and related expenses, dates of marriage, divorces, births or deaths).
- Find an accountant. Get a referral from someone you trust. Negotiate with them on their service rate.
- Pull out your cheque book and design a payment plan with your accountant.
The more organized you are with your taxes, the less money it will cost you to catch up.