Many taxpayers view their annual filing as a stressful exercise and feel great relief when the job is done.
Some people choose to avoid the task.
The Canada Revenue Agency says, 10 to 15% of the country’s total population do not file a tax return each year. That amounts to a substantial number of people.
It includes some self-employed individuals who didn't file an income tax return for a variety of reasons, including the belief that filing wasn’t required because they didn’t owe taxes or only expected a small refund and thought it wasn't worth their time.
But there are more good reasons to file than you might think.
- If you are due a refund you should collect it. Otherwise the government continues to use your money.
- If your income is low enough you might have access to social programs and tax credits you may be missing out on.
- The CRA can go back and request returns from previous years and automatically apply interest and penalties to returns that have a balance owing.
- In some cases, the CRA has arbitrarily assessed taxpayers for revenue while ignoring business expenses that would reduce your taxes. They then place the onus on you, the taxpayer, to prove expenses.
If you passed on this or previous years’ tax filing, there is something you can do to avoid the full impact of CRA actions.
The CRA operates a Voluntary Disclosures Program (VDP) to encourage taxpayers who have not reported income tax or GST/HST to come forward and clear their affairs.
A person who volunteers to disclose income tax or GST/HST owing will not have penalties imposed by CRA for non-reporting for a period of 10 years prior to their VDP application.
However, they must pay the tax owing and the interest, with some exceptions.
A disclosure is only considered voluntary if it is complete and not triggered by a CRA audit or enforcement action.
A taxpayer who has not filed at all would be required to file for 7 years, including the current year.
A taxpayer who has filed but failed to fully disclose income is required to file for years that are otherwise closed for changes or adjustments.
A disclosure can be made on a “no-name” or anonymous basis by a representative.
Once all the details are agreed on, including how much tax and interest is payable, only then does the taxpayer’s name need be disclosed within 90 days of effective date of the disclosure.
Full payment or an acceptable arrangement will need to be made at the time of disclosure.
For GST disclosure, full payment must be made or interest will apply.
Remember, although the self-employed filing deadline is June 15, any taxes owing were due by April 30. Interest and penalties are accruing for the amount owing on your 2015 tax return since then.
If you’re caught in the predicament of late filing or unreported income for past years, contact FBC now. We can work with CRA on your behalf to help resolve the matter.