Ron Clarke has his MBA and is a business owner in Trail providing accounting and tax services. Tax Tips & Pits will normally run the first and third Mondays until April. Email him at ron.clarke@JBSbiz.ca
Besides the obvious of “it’s the law,” why should you file your personal taxes?
Well, if you have a refund, why not? It’s your money. As apparent as this may be, it is amazing how many people use the rationale that they have a refund coming to justify their procrastination in filing their taxes.
My recommendation, if you have a refund awaiting you, file as soon as possible.
Also, even if you have little to no income, you will likely be eligible for refundable tax credits, such as the HST credit. This is when government pays you!
Now if you owe taxes, filing after April 30 can cost you money, serious money. Canada Revenue Agency (CRA) has the authority to not only impose interest at a whopping five per month on your taxes payable, it can also impose a penalty of between 10 per cent and 50 per cent of your taxes payable.
That means a $1,000 tax bill on April 30 can be as high as $1,500 on May 1 . . . plus interest! So, file on time if you owe money, even if it is incomplete. A T1 adjustment can be completed after the fact and will likely reduce the punishment to interest only.
Which begs the question, what to do if you discover you misreported or entirely missed reporting something? By the way, this is a common query.
When it comes to errors and omissions with prior tax filings, it is far better to self-identify this issue to the CRA than have them find it for you.
In the busy CRA tax centres, great pride is taken by civil servants to match slips that are sent in with your return, with copies of those same slips they receives from employers, banks and other income sources.
And if there is a discrepancy, they’ll track you down and if you haven’t initiated an adjustment already, you could be assessed a penalty in addition to interest, whereas if you voluntarily disclose the mistake, your punishment will likely only be interest.
The same CRA actions hold true for overestimated or inappropriate expenses or deductions used to net against income. Except in this case, instead of missing slips, it’s some CRA red flag that picks your return out of the stack.
Or, perhaps it’s your turn for a random tax review.
Regardless, having taken the initiative to make things right before Canada Revenue Agency comes calling is the best way to mitigate punishment.
Some typical CRA flags include not having filed in past years, filing late for the current year, items claimed or not claimed this year that were or were not in the past, a big difference in value of something reported this year over last, missing slips to accompany the tax return, claiming medical and-or moving expenses, to mention some popular ones.
And for proprietors, there are industry standards that should be respected in the reporting of business revenue and expenses in order to avoid red flags. That’s not to say that a business can’t be out of the “norm,” but it may very well be challenged by the CRA so supporting evidence must be on file.
There are also unique bookkeeping rules and opportunities for proprietorships that shouldn’t be missed. More on this later.
How best to protect yourself from CRA? File early and file in compliance.