As we approach one of the biggest tax filing days of the year* and tension rises, it’s time to remind everyone of one important thing:

Even if you can’t afford your tax bill, you really, really, really should file your tax return on time.

You may not remember the old days when winged dinosaurs ruled the skies and we filed taxes on paper and mailed them in.

Back then it was customary to drop a cheque in the envelope if we owed tax. This custom, along with the fact that the filing deadline and the payment deadline tend to fall on the same date* for most of us, has made it so that to this day many Canadians equate filing a return with paying their bill.

The fact is, the filing and paying don’t have to go together and never did.

You have always had the right to file your taxes one day, and pay at some other date.

And that’s what you should do, if you owe tax this year and can’t pay it (or can’t pay it all) right now: file your return anyway.

The Canada Revenue Agency (CRA) is run by bureaucrats – which, trust me, is what you want when someone’s job is determining your income tax owing and managing your account. You want someone who’s obsessed with records and tracking and proper procedure working the tax desk, not someone who yearns to perform interpretive dance.

The flip side of that bureaucratic coin is that CRA agents positively break out in hives when they don’t receive the paperwork they need to get their job done. Hence they’re far more punitive when you owe them paperwork than when you just owe them money.

If you pay your taxes after the payment ‘deadline,’ which is always April 30* for all Canadian individuals regardless of their filing deadline, CRA can charge interest at their current rate (which at the time of this writing in 2020 has held steady at 5% per annum for several years).

Self-employed returns have an extended filing deadline

What if I need to file old returns?

But if you file your taxes after the filing deadline you’ll immediately pay a 5% penalty for the first day you’re late, plus another 1% for every additional month you’re late, up to 12 months. If you’ve made a habit of filing late (CRA considers you to be a habitual late filer when you’ve filed two out of any three consecutive returns late), all the penalties double.

For example:

If you have a $1,000 tax bill, file on time* and pay six months later, you owe an additional $25 in interest.

On the other hand, if you paid one day late but waited six months to file, you’d pay a late filing penalty of $300.

 

The moral of the story is that when you’re dealing with bureaucrats, focus on the paperwork first and money second. It’s better to owe tax, then to owe a return.

* The filing deadline is June 15 for self-employed people and their spouses, and April 30 for everyone else; the payment deadline is April 30 for everyone. Note that for the 2019 tax year, due to the Covid-19 pandemic, filing and payment deadlines have changed. The April 30 filing deadline has been pushed back to June 1, 2020, while the payment deadline has moved to September 1, 2020. The filing deadline for self-employed people remains June 15, 2020.

 Booking an appointment:

Contact us to set up an appointment. Let us know which tax year(s) you’re filing, whether you have self-employment income, and whether you’re a new or returning client and we’ll get you set up ASAP.