Normally, if you do not file a tax return and are required to, or if you make false statements in completing your tax return, or if you leave out important information so that you under-report your income, the Income Tax Act imposes penalties. In circumstances of willful fraud or tax evasion, you may be criminally prosecuted.
Filing your taxes late and not filing your taxes at all can have severe consequences. There are many probable consequences related to unfiled tax returns. CRA will assume you are evading the payment of taxes. Financial affairs and personal situations can be surprisingly sensitive to the lack of current tax filing history.
Here are some issues that you or your company may experience as a result of not having filed your tax returns:
1. Obtaining Credit
Financial institutions and many organizations that provide financial assistance almost always insist on the notice of assessment of corporate or personal tax returns to validate income for debt repayment ability or qualification for program payments. If this independent proof of income is unavailable, you may not receive the financing you require at reasonable rates and terms. Spinoffs of this debacle include a negative impact on credit ratings, delays for receiving benefits, grief to executors and estate beneficiaries, landlord problems, and not surprisingly, really mad spouses.
2. Noncompliance Affects Other Areas
CPP benefits, old age security payments, spouse transfers and tax elections, student loans, GST/HST, and child tax benefits will be reduced or not available. Personal tax returns of either spouse or common-law partners have to be filed as family income is an important determinant of many calculations and entitlements.
3. You Are Presumed Guilty
CRA assumes guilt until taxpayers prove themselves innocent. That is the law. Significant costs usually result if CRA takes action – warranted or not. Taxpayers need to stay ahead of CRA and take advantage of the self-assessing tax system – complete with valid tax planning opportunities.
4. CRA Will Proceed Against You
Once CRA discovers unfiled tax returns and is not satisfied with communication outcomes they often have to get attention by issuing notional (estimated) assessments (tax bills). These assessments are valid tax debts until you file the correct tax returns. These estimated assessments are usually 2 to 3 times what CRA suspects your income to be and will include penalties and interest. The collections department will act on these notional assessments.
5. Noncompliance Affects Others
Unfiled tax returns will affect spouses or common-law partners, business partners, and customers. CRA likes group audits and may assume that there are likely others in family or business groups who are noncompliant. More importantly, if asset ownership or bank accounts are co-mingled or taxpayers have provided funds (not loans) to non-arms length-related parties; CRA is quite active in pursuing third parties for one’s tax debt.
6. Severe, Debilitating Costs
The cost of tax owing increases relentlessly with the application of negligence penalties, late filing penalties, interest on unpaid installments, interest on unpaid taxes, and interest on penalties. Assuming penalties and interest are applied in the usual CRA practice, you can expect your tax debt applicable to each year in arrears to double every eight years. Late filing penalties and gross negligence penalties are ‘hard’ penalties and quite difficult to dispute if the facts are not in the taxpayer’s favor.
7. Transferring Assets
It bears repeating – transferring assets to non-arm’s-length parties (spouses, family, and partners) will create jeopardy for the people who have received assets from you for what CRA will assume are for purposes of tax payment avoidance. In other words, CRA collections will demand information from you (which you must provide) that will inform them of assets that you have hidden or transferred. There exists legislation regarding fraudulent conveyances.
To collect taxes owed and avoid the time and expense of prosecuting people, CRA has set up the Voluntary Disclosures Program (VDP). The Program allows people to disclose any information that is not accurate, not complete, or that was not reported on previous tax returns, without having to pay a penalty or face prosecution. However, the individual will still be responsible for paying the tax owing plus interest. In some cases, CRA may grant partial relief of the interest owing.
Not long. The CRA has many systems in place to find out who isn’t paying their taxes. The technological advancements allowed the CRA to improve its search process, so it’s difficult to avoid paying your taxes for multiple years in a row.
The CRA set up the Voluntary Disclosure Program to enable people who are behind in reporting their taxes to come clean and repay what they owe without paying any penalties. But if the CRA finds out that you haven’t been paying your taxes and tracks you down before you contact them, you will have to pay penalties and interest on what you owe.
Tax evasion happens when an individual or business does not respect the country’s tax laws. If an individual or business does not file their tax returns as they should, by not declaring their income accurately and completely, or by claiming fraudulent expenses on their tax return, they commit tax evasion.
The amount of income tax you pay is correlated with how much money you make in a year. You can reduce the amount of tax you have to pay by claiming certain expenses and tax credits.
Income tax is generally subtracted from your pay by your employer and sent to the CRA. However, you may also have to determine how much you owe and forward the amount to the CRA.
Every year, you should file a tax return to report how much you made, make sure that you’ve paid all the income tax you were supposed to, and access tax credits and benefits.
After the CRA analyzes your tax return, you will get a notice of assessment that will let you know whether you paid too much or too little income tax and whether you are eligible to get some money back through credits and benefits.
You should file your individual tax return by April 30. Keep in mind that, if you’re paying your taxes by mail, your letter should be postmarked before April 30 to avoid penalties.
If you or your spouse are self-employed, you can file your income tax and benefit return by June 15.
If you’re a small business owner, you should file your income tax return by June 15, but you should pay off your balance owing for the previous tax year by April 30.
Corporations should file their income tax returns up to six months after the end of the tax year, so this date will vary according to the corporation’s fiscal period.
If you haven’t filed your taxes in a while, get started today to avoid these potential consequences. For advice and assistance with tax planning, a CRA tax dispute, or other tax issues, get in touch with Filing Taxes today to see how we can help. Experts at Filing Taxes will be happy to assist business owners in this pursuit. To speak with an experienced accountant, contact Filing Taxes either at 416-479-8532 or [email protected]. Schedule an NTR engagement appointment with us and take the first step towards proper management of your finances.
Disclaimer: The information provided on this page is intended to provide general information. The information does not consider your personal situation and is not intended to be used without consultation from accounting and financial professionals. Salman Rundhawa and Filing Taxes will not be held liable for any problems that arise from the usage of the information provided on this page.