Tax season has long been a busy time of year for Canadians. While filing taxes early and getting them out of the way is definitely preferable, it’s easy to put it off and waiting until the last minute to do your taxes. Here are a few things you should know before you consider filing your taxes late.
Even in a relatively uneventful year, there are countless distractions that can lead to people saying: “I’ll do it tomorrow.” In the wake of COVID-19, filing taxes might just be the last thing on many Canadians’ minds.
But what happens if you don’t file your taxes on time? Is there a penalty for filing taxes late even if you owe nothing? How do you file late tax returns in Canada? Let's find out!
The Tax Deadline in Canada
First and foremost, it’s important to know what the tax deadline is in Canada. For most Canadians, the personal income tax filing deadline is April 30. For Canadians who are self-employed (or their spouse/common-law partner is self-employed), the deadline to file tax returns is June 15, 2021.
However, if you end up owing taxes on your 2020 tax return and you're self-employed (or your spouse/common-law partner is self-employed), it has to be paid by April 30, 2021 to avoid interest charges. So it's best to file your taxes by the standard April 30th deadline, even if you're self-employed, in case you owe.
Filing Taxes Late in Canada
So, what happens if you miss the deadline for filing your personal income taxes? Well, the Canada Revenue Agency (CRA) does have a procedure in place for accepting late tax returns from Canadians.
However, you should know that filing taxes late in Canada may cause you to be subjected to penalties, interest charges, and/or the (temporary) loss of certain government benefits until your taxes are filed and processed.
Interest and Late-Filing Penalties in Canada
If you owe taxes on your 2020 tax return, the CRA will charge compound interest daily starting May 1, 2021, on any amounts you owe.
How much is the interest? The CRA will charge a 5% late-filing penalty if you file your taxes after the deadline and you owe taxes. Then on top of that, they will charge an extra 1% for every month it's late, up to a maximum of 12 months, on any taxes you owe for 2020.
For example, say you owed $1,000 and filed late. If you filed on June 1, 2021, the CRA would charge a 5% late-penalty for missing the filing deadline. This would add an extra $50 to the total amount you owe. Then they would charge another 1% for the month of May, which works out to about $10 (or roughly $10.50 due to compound interest) for the extra month. That’s over $60 of extra money owed to the CRA just for filing late.
If you're a repeat offender and were charged a late-filing penalty on any of your last three tax returns, the CRA may increase that late-penalty from 5% to 10% on any amount you owe for 2020. Plus, they may charge an additional 2% (instead of 1%) on what you owe for 2020, every month your tax return is late, up to 20 months.
The best way to prevent this from happening is to file your taxes on time, even if you can’t pay at the time when you file. If you can't pay your balance to the CRA in full, you can work with the CRA to pay off your personal income tax debt (plus interest) over a longer period of time through what's called a payment arrangement.
The good news is, is that if you received COVID-19 benefits in 2020 and had a total taxable income of less than $75,000, you may be eligible for interest relief on the taxes you owe for 2020 until April 30, 2022.
Is There a Penalty for Filing Taxes Late if You Owe Nothing?
So, what happens if you file late with the CRA, but you don’t actually owe any money? Filing taxes late when you don’t owe may not result in significant interest charges, since the CRA can’t apply interest on money you don't owe. However, it can lead to other issues.
For example, if you receive government benefits, in many cases you must file an annual tax return to keep receiving them uninterrupted. The government uses tax return information to verify eligibility for certain assistance programs. If you fail to file your taxes on time, your coverage under these programs may lapse. Some of the benefits where you need to file your tax return in order to keep receiving them include the Guaranteed Income Supplement (GIS), the GST/HST credit, and the Canada child benefit (CCB).
You should also know that other benefits in different provinces and territories may also be affected if taxes aren’t filed on time.
Filing Multiple Year Tax Returns in Canada
So, what should you do if you haven’t filed your taxes in years? If you're wondering how to file late tax returns in Canada, you should know there are software programs online to help with filing taxes for previous tax years. You can also request income tax packages for previous years from the CRA if you want to file previous years’ taxes on your own.
What happens if you haven’t filed taxes, but you haven’t been contacted by the CRA yet? Just because the CRA hasn't contacted you doesn't mean you're in the clear, and it's best to contact them first before they have to track you down. Tax debt doesn't disappear.
The CRA has a Voluntary Disclosures Program (VDP) that can help individuals who haven't filed a tax return for previous years. It can also help those who need to correct information on a tax return they have already filed. If the CRA accepts your VDP application, you could qualify for some relief on tax debt interest or other penalties by voluntarily reporting errors or omissions in your tax filings before the CRA discovers or contacts you about them.
The CRA also offers taxpayer relief provisions where they waive penalties or interest for people who couldn't meet their tax obligations for certain reasons. This includes financial hardships, and circumstances beyond your control, like a serious health issue or natural disaster.
What Happens if You Don’t Pay Your Taxes?
So, what happens if you don’t pay your taxes in Canada? The first thing that happens is that the CRA begins assessing the penalties and interest charges mentioned earlier. Then, after about 90 days from the date they send you their notice of assessment, the CRA may begin to take legal action, starting with an attempt to give you a verbal warning by phone and a written legal warning letter.
Some of the legal actions the CRA may take include:
- Garnishing your wages to collect the outstanding tax debt
- Redirecting funds from other government benefits you would normally receive to cover what you owe
- Putting a lien on your assets (in extreme cases)
- Seizing and selling assets to pay off what you owe (again, in extreme cases)
To avoid this, it’s usually best to file your taxes as soon as possible. If you cannot pay your taxes in full at the time of filing, contact the CRA and make arrangements to pay them on a schedule that works with your budget. This can help avoid wage garnishments, or worse.
Do you need help dealing with any taxes that you owe and other forms of debt, like credit card debt? Contact us for a free Debt Assessment and we can talk about different options you have to pay off any unsecured debts that you owe.
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