'Most of the city is evacuating': Gridlock on Alberta highway after evacuation order in Fort McMurray
Four Fort McMurray neighbourhoods were ordered to evacuate on Tuesday as a wildfire gets closer to the city.
Have you fallen behind on filing your tax returns?
For those of you who've been putting it off while telling yourself you'll get to it eventually, the onset of tax season likely brings your avoidance -- and the stress that comes with it -- to the forefront.
The confusion about where to begin, coupled with the fear of potential penalties and the reality that you’re facing another year’s tax return can make the situation stressful, to say the least.
Firstly, take a deep breath. You aren’t the only one facing this problem, and you’re not going to get carted off to jail for missing a few tax returns. The CRA has implemented a system for taxpayers to catch up on their tax returns and take care of previous tax debts (back taxes) if they’re owed.
Whether you’re just behind one year or several, here’s where to start if you haven’t filed taxes in a while.
The tax deadline is April 30. This means there’s still time to file your taxes, so get on it if you haven’t done so already.
Even if you missed last year’s or previous years’ tax returns, start this year off right and file your taxes for this year. Then, go back and handle the previous years’ tax returns.
Here’s a quick step-by-step guide on how to get back on track with your taxes.
First, collect all of the tax documents you have at your disposal. This includes T4 employment slips, T4A self-employment papers, and records of any other income you may have earned, including but not limited to:
If you have a complex tax situation, such as self-employment, investment income, or significant life changes, consulting with a tax professional is a good idea.
A professional can navigate complexities, identify eligible deductions and credits, minimize potential penalties, and help negotiate with the CRA. There's no strict number of missed years that mandates professional advice, but if your tax situation involves multiple unfiled returns and you suspect you owe money to the CRA, professional guidance can potentially reduce your tax liability, and at the very least ensure that you aren’t breaking any rules.
Now that you’ve got all of your information in order, complete with annual income and itemized deductions, it’s time to file your tax returns retroactively, year by 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 paper file.
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 getting paid by the CRA if you were owed money back 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.
After filing all of your missed tax returns with the CRA, you’ll be left with 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 negotiate a payment plan with the CRA. I’ve 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 determining your repayment plan, so that you can gradually tackle your debt over time.
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 per cent of the tax balance you owe. For every additional month that you file late, you’ll be required to pay an additional 1 per cent.
For example, if you file your taxes in May, you’ll pay a 5 per cent late fee. By June, that will go up to 6 per cent, 7 per cent in July, 8 per cent in August, and so on, to a maximum of 12 months.
So, hypothetically, if you owe $1,000 to the CRA and miss the April 30 deadline, you’ll automatically be required to pay an extra $50 (5 per cent of $1,000) if you file in May.
If you’re a repeat offender and filed late in 2020, 2021, or 2022, then the CRA will impose a heftier 10 per cent late-filing fee, and tack on an extra 2 per cent for every month you file late, to a maximum of 20 months.
Missing tax returns and paying taxes late may also affect your eligibility for future tax-related benefits.
Even if you earned no income whatsoever, the CRA still requires you to file a tax return. This tax data is used to create policies for the entire country, including providing aid for low-income households. Whether you like it or not, it’s your civic duty.
That being said, after filing their taxes, many Canadians discover that they don’t owe any taxes. In some cases, they may even be owed a tax refund by the CRA.
Here’s the good news. If your tax return indicates that you don’t owe anything or that you have a return coming your way, then you don’t have to worry about any late-filing penalties.
Nonetheless, you’re still required to file your return. Never assume that you don’t owe anything.
When it comes to your taxes, it’s always best to be proactive.
If you believe that you may have forgotten (or purposely omitted) items in your previous tax returns, the CRA gives taxpayers the opportunity to come forward and amend the issue through the Voluntary Disclosure Program (VDP), before the CRA has to reach out to them.
In some cases, the CRA may even offer relief or reduce the penalty that you may have been required to pay had the CRA had come to you about the issue first.
The CRA doesn’t simply forgive tax debt and strike it from the records. Instead, the CRA offers payment plans so that you can gradually get on top of your taxes and get them paid off over time.
In some rare cases, the CRA may offer relief (not complete forgiveness) on a case-by-case basis. You’ll need to contact the CRA directly to set up a consultation. Similarly, you may also put in a request to waive late-filing penalties.
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 could mean staying more organized. For others, it could mean committing to filing your taxes earlier in the year rather than waiting until the last minute.
Whatever the case may be, catching up on taxes is not a headache that you want to be faced with every year.
If you’re left with a debt that you’re not entirely sure how to take care of, here are some tips to help you conquer your debt quicker.
Christopher Liew is a CFA Charterholder and former financial advisor. He writes personal finance tips for thousands of daily Canadian readers on his Wealth Awesome website.
Do you have a question, tip or story idea about personal finance? Please email us at dotcom@bellmedia.ca.
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