Help! I'm a few years behind in filing my taxes! What do I do?
You are not alone and I can help.
I have been asked this question a few times and usually the first thing I say is...
"You are not alone and I can help."
This problem is actually more common than you are led to believe it is.
While it may seem like it's the end of the world, it really isn't that bad. So please take a deep breath and relax for a few minutes, while I explain the general concerns with your situation.
Canada Revenue Agency (CRA) is ultimately only concerned with collecting any taxes you may owe them. If you don't owe them anything, then they are less concerned with your unfiled tax returns. If you have a history of getting tax refunds, they likely aren't even bugging you get them filed.
There are a few main reasons that should get all your outstanding tax returns filed as soon as possible.
Interest and Penalties
If you do in fact owe CRA any past tax amounts, they will assess you penalties and interest for filing late as follows:
Late-filing penalty is 5% of the balance owing, plus 1% of the balance owing for each month that the return is late to a maximum of 12%. This means that if you are over a year late in filing you will be charged a late filing penalty equal to 17% of the tax balance owing to CRA.
I you were late on any of the three previous years, that penalty doubles.
In addition to the late filing penalties, they will charge compound daily interest on any unpaid balances (including the penalties) based on the prescribed interest rate in effect throughout the outstanding period. This rate is currently 6% per annum, and has ranged from 5% to 9% over the last 10 years.
The interest and penalties can be very costly if you're really far behind.
If extraordinary circumstances beyond your control arose that prevented you from filing your returns and/or paying for the taxes, I can help you file for taxpayer relief to possibly have some or all of the interest or penalties waived.
Missing out on refunds, rebates or benefits
If the unfiled returns result in tax refunds then the above penalties and interest would not apply. They can only penalize you if your tax return is filed with a tax payable balance.
So by not filing returns with refunds, you are the only person that suffers, because you are not getting your tax refunds. The CRA has essentially had an interest free loan from you this whole time.
In addition to not getting the tax refunds you are entitled to, you may be missing out on other benefits that can only be paid out if you filed your tax returns.
Do you remember the Prosperity Bonus cheques (aka "Ralph Bucks") that were handed out in January 2006? Well, in order to receive that money, all you needed to do was file your 2004 personal income tax return. If it wasn't filed you didn't receive the bonus. Of course, those bonuses are few and far between, however, there are other government benefits that are directly connected to filing your tax return.
You must file a tax return in order to receive the GST/HST Credit, Canada Child Tax Benefit, the Working Income Tax Benefit or to renew the Guaranteed Income Supplement or Allowance Benefits.
If you don't keep your returns up to date, you will eventually stop receiving these benefits if you are entitled to them. Some of those benefits are paid retroactively once everything is filed, however, that discussion is best left for another day.
As you can see, it's not the end of the world to be late with filing your tax returns; however, it can create some financial hardship depending on your situation.
If you do in fact owe a significant amount of money, the CRA is very reasonable with their expectations. With the appropriate requests submitted they will accept you making monthly payments to get everything paid off. However, if you ignore the balance owing, they will eventually send you to collections. So whatever you do... don't ignore it!
The process to getting everything caught up is quite simple. Gather all your tax documents related to the outstanding tax years and give me a call.
I will make sure that we get your past returns prepared and filed as soon as possible so that you can get on with the more important things going on in your life.
Thanks for taking the time to read my very first blog post. If you have any questions or suggestions for future posts, please do not hesitate to contact me.
Have a great day!