Now that you have collected all the information needed to file your taxes what’s next? Crowe MacKay LLP’s tax team share five important steps to ensure you are not penalized.
1. File Your Taxes on Time
The normal deadline for filing an income tax return for the previous year is April 30. This filing deadline is extended to June 15 if you or your spouse are self-employed. However, income taxes payable are still due on April 30. Similarly, the information return for “Specified Foreign Property” having an aggregate cost over $100,000 CAD at any time during the year (Form T1135) must be filed by the individual’s filing deadline.
Taxpayers who do not file their income tax returns on time face significant late-filing penalties: 5% of the balance due plus 1% per month to a maximum of 12 months for the first offence, plus applicable interest on the penalty. The penalty can more than double where the taxpayer fails to file on time for a second time in three years and if a formal demand for filing has been issued by the Minister.
Interest and penalties are not tax deductible and add up quickly at the rates charged by CRA. Even if you cannot pay the amount of taxes due, ensure that you file on time.
2. Report All Income
If you have income from several sources, make sure that you do not miss reporting any of it. By failing to report income on your return in the current year and in any of the three preceding years, you could be subject to federal and provincial/territorial penalties based on 10% of the unreported income, in addition to paying the understated tax liability on the unreported income. Interest applies on the unpaid amounts. We recommend that you ensure that you have information on all your income when having your return prepared.
3. Disclose the Sale of Principal Residence
Many Canadians are aware of the fact that they will likely not pay tax on the sale of their home as a result of the principal residence exemption. However, what some taxpayers are not aware of is that this does not relieve them of the requirement to disclose the sale to the CRA. If you sold your home during the year, you must file your personal tax return, completing Schedule 3 and Form T2091(IND). Failure to do so will result in penalties.
4. Pay Required Tax Instalments
Failure to pay quarterly income tax instalments when required may result in interest charges. It is possible to make catch-up payments and reduce or offset the interest charges. Contact your Crowe MacKay tax advisor if you are unsure if you are required to make tax instalments.
5. File a Return – Even if You Do Not Have Income to Claim
Even if you do not have income to report, failing to file your return can put you at a financial disadvantage. Several benefits and social programs are issued to individuals based on the income (or lack thereof) reported in their filed tax return. For instance, the Canada Child Benefit is a tax-free monthly payment from the Government to assist eligible low-income families with the costs of raising children. In order to be considered for the benefit, you and your spouse must file your return every year. Guaranteed Income Supplement (GIS), GST/HST credit, and the Canada Workers Benefit are other benefits that are assessed and paid based on personal income tax filings.