Filing your tax return on time in Canada isn’t just a legal obligation; it’s an important step toward maintaining your financial wellness. Neglecting this duty can lead to penalties and, in extreme cases, be considered a tax crime. By understanding what happens if you delay or neglect tax filings, you can better manage your financial responsibilities and avoid unnecessary stress.
Continue reading to explore steps you can take to avoid penalties and interest, understand the consequences of tax evasion, and receive benefits and credits you could be owed once you file your taxes.
Filing tax returns is often necessary to prove income when applying for loans, mortgages, and other financial services.
Immediate action, such as contacting the CRA for a payment plan, can mitigate penalties and reduce financial stress.
Utilizing guided tax services, like TurboTax, simplifies the filing process and helps avoid common pitfalls.
Why filing your tax return matters
Filing your tax return is essential, not just for staying on the right side of the law but for securing your financial health. Each year, many Canadians miss out on benefits because they either file their tax return late or don’t file it at all.
By submitting your taxes before the April 30 tax return deadline, you’re not just avoiding penalties—you’re also ensuring you receive all the benefits and credits available to you, like the goods and services tax/harmonized sales tax (GST/HST) credit, the Canada Child Benefit (CCB), and Old Age Security (OAS) and guaranteed income supplement (GIS) payments. These benefits can significantly enhance your financial situation, providing more funds for daily expenses, savings, and investments.
There are additional reasons why you should file your tax return. The notice of assessment (NOA) is a critical document issued by the Canada Revenue Agency (CRA) after your tax return has been processed. It details your tax situation, including the amount of tax you owe, the amount of tax paid, any credits applied, and benefits you’re eligible to receive.
Not having an NOA can lead to several complications, especially in situations where proof of income or tax compliance is required. For example, without an NOA you might face delays when applying for loans or mortgages, as banks and financial institutions commonly request this document as proof of your financial standing.
What is the late fee for filing taxes after the deadline?
The CRA imposes late return penalties that can add up quickly. The initial late filing penalty is 5% of your balance owing, plus 1% of your balance for each full month your return is late for up to 12 months. Habitual late filers (those who have filed late for three consecutive years) can face even steeper penalties—doubling those rates to 10%, plus 2% per month for up to 20 months.
You may be subject to a federal and provincial or territorial penalty if you fail to report income of $500 or more on your tax return for the years 2020, 2021, 2022, or 2023. The penalty is the lesser of:
10% of the amount you failed to report, calculated both federally and provincially or territorially.
50% of the difference between the understated tax or overstated credits related to the unreported amount and the amount of tax that was actually withheld from the unreported income.
What happens if you don’t pay taxes?
If you fail to pay your taxes by the April 30 due date, the CRA will charge interest on the owed amount, starting the day after the deadline. This interest compounds daily, quickly increasing the total debt. Interest is charged at the CRA prescribed interest rate.
Additionally, the CRA can collect unpaid taxes by garnishing wages, seizing bank accounts, or placing liens on properties. In severe cases, particularly when non-payment is linked to tax evasion, legal actions could be pursued, potentially leading to fines or imprisonment. These measures can not only affect your immediate financial situation but also impact your long-term financial health, such as damaging your credit score. A low credit score can affect borrowing capabilities and influence housing and employment opportunities.
If you’re unable to pay your taxes in full, contact the CRA to arrange a payment plan. Proactively managing your tax obligations and communicating with tax authorities can help mitigate penalties, prevent severe enforcement actions, and maintain your financial stability.
Is it a crime to not file your taxes?
Yes, deliberately not filing your taxes can be considered tax evasion, a serious criminal offense.
So, what exactly is tax evasion? It involves deliberately avoiding paying taxes owed by illegal means. This could include underreporting income, claiming deductions for expenses that were never incurred, or hiding money in offshore accounts.
When the CRA suspects someone is avoiding filing and paying taxes, they can take legal action against the individual or business involved. This can include audits, reassessments, and, in severe cases, criminal charges. Legal proceedings initiated by the CRA can result in heavy fines, interest on unpaid taxes, and possible imprisonment. However, most cases of non-filing are due to misunderstanding or financial hardship rather than criminal intent.
TurboTax provides resources and support to help you understand your legal obligations and avoid severe consequences. Whether you need help with the filing process or you’re worried about owing money you can’t pay, TurboTax can guide you through the steps necessary to comply with the law.
Practical steps to avoid or resolve non-filing
If you fail to file your tax return, the CRA may send a Demand to File letter. This official communication requires you to file a tax return within a specified deadline, typically very soon after the letter is issued.
After receiving a Demand to File letter, if you still haven’t filed your taxes, the CRA might issue an arbitrary or notional assessment, estimating your taxes based on previous returns or average data for similar taxpayers. This assessment is often a significant overestimate of your tax liability to prompt you to file a correct return as soon as possible.
Here are the steps you can take to avoid or resolve non-filing:
Contact the CRA. This step only applies if you have received a Demand to File letter or an arbitrary assessment. If you owe money, discuss potential payment plans. Taking this proactive step can help prevent further penalties and demonstrate your intention to resolve the issue responsibly.
Gather your documents. This includes your tax slips, receipts for deductible expenses and credits (such as charitable donations, medical expenses, and education costs), and information on any other income you may have received during the year.
Determine your filing status. Decide how you will file, whether as single, married, or with a common-law partner. This affects which credits and deductions you may be eligible for.
Fill out your tax return. Complete your tax return, either manually if filing on paper or by entering your information into tax software. Ensure that all your information is accurate. Take advantage of any deductions and credits you are eligible for.
Submit your return. If filing electronically, submit your return directly through the software. You will receive a confirmation code from the CRA once it is successfully received. If filing by mail, send your completed tax forms to the appropriate CRA address for your region. Make sure to keep a copy for your records.
Track your refund or pay any amount owed. After filing, you can track the status of your return and any expected refund using the CRA’s My Account online service, or the MyCRA mobile app. If you owe money, make arrangements to pay by the deadline to avoid interest and penalties.
Store your tax records. Keep a copy of your filed tax return and all supporting documents for at least 6 years, as the CRA may request to see them if your return is selected for review or audit.
TurboTax can assist by helping you file overdue returns and negotiate with tax authorities, ensuring you get back on track without undue stress.
Your partner in navigating tax challenges
If you miss the April 30 tax deadline, TurboTax can assist with rectifying this by helping you quickly prepare and submit a late tax return. TurboTax also offers access to tax experts who can provide personalized advice on how to negotiate with the CRA, possibly reducing penalties or setting up a payment plan.
TurboTax offers features like maximum refund guarantees and expert support to help you tackle tax filing confidently through its TurboTax Live service. These experts are available to provide personalized advice and can review your tax return line by line before submission.
TurboTax can guide you through the process of getting you back in compliance with the tax laws. This proactive assistance helps prevent the accumulation of further penalties and safeguards your financial health.
Whether you’re an individual filing taxes, or if you’re self-employed, TurboTax can help ensure you don’t overlook any details, guiding you through a thorough income reporting process, ensuring all earnings are accounted for and reported correctly to the CRA.
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