You tried to do your taxes, fumbling through a whole array of tax slips, deductions, credits, and benefits. Somewhere along the way, you were sidetracked by frustration, work, the kids, your health, anxiety — the list goes on. Long story short, your tax filing is going to be late.
That’s ominous. What’s going to happen to you? Did anyone else just hear that knock from the CRA? Jokes aside, you’ll be totally fine. Read on to see exactly what happens when you file taxes late, and exactly what to do about it before and afterward.
If you feel especially overwhelmed by your situation, take a load off your shoulders: contact us today. In a free consultation, you can explain your situation to us. We’ll show you the way out.
I’m Late To File My Tax Return. What Happens?
Just to be clear, the CRA (Canada Revenue Agency) asks that you file your tax before May 1st. If you’re self-employed, you’re given more time: June 15th is the last day you can file your tax return. Here’s the catch. If you owe taxes to the government, you’ll still need to before May 1st or else you’ll incur late penalties and interest.
Here’s how late penalties and interest are calculated.
Late penalties start at 5% of the tax you owe. For every full month your taxes are late, you’ll be charged an additional 1%; this continues for up to 12 months.
Additionally, there’s interest on the amount you’re yet to pay. This is compounded daily, starting on May 1st. Interest rates change every couple of months, but the CRA posts the latest rates.
Crucially: even if you can’t pay your taxes, file the tax return regardless. The CRA can hook you up with arrangements to pay later and at a gradual pace.
More on that below.
As a side note, you won’t be charged late penalties or interest if you don’t owe any taxes in the first place. But that’s not something you can count on. Therefore, make sure you file on time and avoid any unexpected expenses, interruptions to your benefit payments, or negative attention from the CRA.
If You Can’t Pay In Full Right Now, Do This
You may be able to get a payment arrangement or even taxpayer relief from Canada Revenue Agency. The best thing to do is contact the CRA immediately.
Using their online portal (My Account or My Business Account), you can explore your payment arrangement options, such as paying by pre-authorized debit transactions that trigger on future dates, in smaller portions.
Ignoring your debt doesn’t make it disappear. In fact, it does the opposite. If you’d benefit from a second opinion, book a free consultation with us; explain your debt situation and we’ll map a path to financial freedom.
How do I estimate my tax payment arrangement?
The CRA has released a Payment Arrangement Calculator, with which you can see how much you’d need to pay and the amount of time needed to completely eliminate your tax debt. The only question is how much you can afford to contribute to paying off your debt. Thankfully, the CRA has an answer for that as well.
The Income and Expense Worksheet lets you input the different types of income you may receive, such as salary, commission, pension, disability, and more. Then, you can key in your expenses: mortgage, insurance, phone bill, etcetera. At the end of the process, you’ll have a great picture of your disposable income, which should dictate how much you put toward being debt free.
Stay on track with your payments — inform the CRA if you can’t
Once you have landed a payment arrangement, you’ll want to follow it closely. If you ever find that it’s still a struggle to make your payments on time, check out the CRA’s collections webpage. There are also a handy set of videos on Debt Collection at the CRA.
Your Worst Case Scenario: Tax Evasion And Fraud Penalties
If all else fails, you could go to prison. Seriously: under the Income Tax Act and the Excise Tax Act, it’s illegal to not file a tax return. You could also be hit with serious fines, up to 200% of what you owe, plus all the interest, plus the penalties.
You’re also guilty of tax evasion and fraud if you:
- Make fake records or use inaccurate numbers
- Claim your expenses are higher than they actually are
- Claim benefits or refunds that you really aren’t eligible for
And tax fraud? That’s a criminal offense. It includes any efforts to deceive the government (or a person) out of money or any other asset of value.
If you raise suspicion, you will be the subject of a criminal investigation and, if found guilty, you’ll go to jail and have a criminal record. The CRA can also forcibly seize your assets, salary, and even your retirement savings until the debt has been paid back.
Needless to say, you never want to suffer that — and you never will, thanks to this guide.
Here’s a final tip that will help the people who need it most.
The CRA Lets You Volunteer To Confess Your Mistakes
Canada Revenue Agency set up a Voluntary Disclosures Program where people can admit their previous tax returns were inaccurate or incomplete. The CRA even forgives and forgets, kind of; some people are allowed to pay just a portion of what they owe.
Unfortunately, this will include interest. More importantly, it avoids facing harsher, life-changing penalties like a criminal record or a huge hit to your credit reputation.
Why would the CRA do this? Basically, the more people admit to their mistakes, the less time the CRA needs to spend hunting down people and proving they owe taxes — which is expensive, with all the financial and legal professionals involved.
Final Thoughts: You’re Ready For Anything Now
If you’re struggling and experiencing anxiety about your finances, it’s good to know that you have options and you choose what fits your situation. If you’re unsure which choice is the best for you, book a free consultation with us. You can share your worries and your circumstances with us, then we’ll give advice based on hundreds of other scenarios we’ve seen first-hand.
This is the other side of the coin: doing your taxes is easier than you think. It all starts with keeping your bookkeeping organized.
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