Late for a very important date

File on time. It’s not widely known, but you can file on time even if you can’t pay on time. Doing so will save you money and headaches, especially if you find out that you don’t owe anything at all.

It’s no secret that the Canada Revenue Agency (CRA) imposes some pretty painful penalties on late filers. If you file your 2006 return late, CRA charges a penalty equal to 5% of whatever tax you’re owing, plus an additional 1% for every additional month you’re late.

It gets even worse for repeat offenders. If CRA charged a late-filing penalty on your return for 2003, 2004, or 2005, then the 2006 penalties actually double.

“Penalties, schmenalties,” I hear you saying, “I can’t afford to pay my tax bill right now. There’s no way I can file on time.” Not true. It comes back to the important difference between filing late, and paying late. You can file a return without paying the amount owing.

Penalties, Schmenalties, and Interest

Sure, CRA would prefer you pay right away, and they can get nasty if you keep them waiting for years. But If you’re just waiting for a cheque you’ll be getting in August, go ahead and file. Pay later.

If you file without paying, all CRA will do is remind you periodically what you owe, and charge you an interest rate of 5% annually — which is a lot better than the 17-34% annually they’ll charge you for filing late.

Moreover, there’s another possibility: you may not owe at all. You may even be getting money back.

The Incredible Shrinking Tax Bill

I’ve had many clients come to me to file old returns (usually because they’ve received a warning letter from CRA) who hadn’t filed on time because they were afraid of what they’d owe. More than once, it’s turned out that they’re getting money back.

Admittedly, every person’s taxes are different, and your mileage may vary. Most people who find out they’re getting refunds either earned very little income, or have regular ‘job’ jobs in addition to their ffreelance income. But the fact is, I’ve personally seen it happen many times.

So do file on time. The situation doesn’t get better by waiting, and sometimes you’re in for a happy surprise.

Filing Deadlines

For most people with regular jobs, tax returns are due April 30.

If you are self-employed or have freelance income you have a little extra time. Those returns aren’t due until June 15. But beware: your taxes are still due April 30.

If you file on time in June and it turns out you owe tax, CRA will charge you two months’ interest right off the top. Just so you know.