Failure to file taxes 'could bankrupt you'
It's better late than never when it comes to your taxes.
If you haven't done your taxes for a year or two — or more — "get on it before CRA gets on you," says tax expert Evelyn Jacks.
The author of books such as Jacks on Tax and Essential Tax Facts says you may face big penalties and interest charges for procrastinating. "If you voluntarily comply -- that is, file your tax return before you (are ordered) to file -- you will avoid gross negligence and possible tax evasion penalties."
Things can get ugly, says John Waters, head of tax and estate planning at BMO Nesbitt Burns, "and repeat failure to file gets even uglier."
The Canada Revenue Agency has recently been more aggressive in going after and fining people who don't file.
Filing is important from a tax-efficient investing point of view as well, she says. "It's your ticket to creating RRSP contribution room. Filing a return also provides access to refundable federal and provincial tax credits."
Sharon P. is a delinquent tax filer. She put off filing for eight years. Luckily the CRA owed her and she collected $16,000 thanks to a tax professional.
She finds it extremely stressful "keeping track" of all her finance and having her income "scrutinized."
"I do use an accountant who is a real saint. I have gotten into trouble in the past for filing late — Revenue Canada will red flag errant and late filers and if they owe you a lot of money," Sharon says, "they'll want to know why and demand a total recount of every single, blessed penny."
She's not alone in putting off the annual deed.
"There are millions of procrastinators out there, judging by the response I get when we give professional development workshops to professional tax practitioners," Jacks says.
When you file late, the interest accrues on both your outstanding liabilities and penalties.
"By the time you finally deal with it or they deal with you," says Kurt Rosentreter, senior financial advisor at Manulife Securities, "it could bankrupt you. It's best to come clean, disclose and approach the CRA through an accountant or tax lawyer."
If you're struggling to meet the deadline, even if you don't have the money to pay, "at least file to stop the bleeding on that 5% penalty and just get hit with the interest charges on the unpaid taxes," says Waters.
Attack late taxes with these tips from tax expert Evelyn Jacks:
- Dig out your receipts and documents from the delinquent years and get them in reasonable order. Contact employers for missing T4 slips, banks for missing safety deposit box slips and get duplicate medical, child care, tuition charity and other slips if missing. That will save you cash on your tax-preparation fees.
- Make an appointment with a certified tax practitioner today. Ask about fees, guarantees of service and whether they can represent you if CRA has questions.
- Set aside some money to pay your tax bill if necessary.