T.S. Eliot famously wrote that April was the cruellest month. Sure, he was talking about despair and the false hope of unrequited love etc., but he might as well have been talking about what it feels like to be in tax season and know you owe a tax bill you can’t pay.

When you’re in that situation, your first instinct may be to avoid filing your return. Maybe you’re hoping this will keep CRA from being mad at you*, or maybe you plan to wait until you have the money. Listening to that instinct would be a mistake.

Filing A Return Isn’t The Same As Paying Your Taxes

There is a vital — and potentially expensive — difference between filing your taxes, and paying them.

Back in the bad old days before electronic filing, when everyone filed paper returns, people started getting the idea that if they owed tax they had to enclose a cheque with the return, right then and there. Heck, the government even told you on the forms where to attach it.

But while the government isn’t about to discourage that sort of misunderstanding – they want the money, after all – the fact is, there never was a requirement to pay right away.

You Can File Now And Pay Later

Filing your taxes only refers to filling out a return and sending it to the government. Paying is a completely separate thing. If you file late, you pay a penalty in addition to interest. If you only pay late, you only pay interest. The difference can be money in the bank.

Pay late -> Pay (modest) interest

File late -> Pay penalties

The penalty for filing – that is, sending in your return – after the deadline is 5% of any tax you owe, plus 1% for every full month of your balance owing for each full month that your return is late, to a maximum of 12 months. That can really add up.

But if you file on time you don’t pay that penalty, even if you wait for months afterward to pay the tax you owe.

At the same time, it’s perfectly legitimate to make the government wait for part or all of your tax payment. That’s what interest is for.

The Canada Revenue Agency (CRA) is run by bureaucrats, remember: they’re like crack addicts for paperwork. They crave it, even more than the money. Accordingly, the consequence of late payment is interest (see CRA’s current interest rate here), which is never as high as the late filing penalties.

What if I’m self-employed?

As you may know, the filing deadline for self-employed people and their spouses is June 15. However, the deadline to pay taxes owing for the tax year without incurring interest is still April 30th. If you’re able to pay, you can avoid interest charges by paying before then. The only way to find out what you earn so you can pay on time is to complete your tax return before April 30th. And once you’ve completed your tax return anyway, you might as well file.

*Note: CRA doesn’t get mad. They charge interest instead.

“But the agent was yelling at me!” – That wasn’t CRA.