All Canadians whether they are working for someone, self-employed or a corporation have to file their tax returns every year. Filing your taxes late and not filing your taxes at all can have severe consequences. In this article, we will discuss the penalties for not filing taxes, as well as some of the other consequences you may face.

Tax Deadlines In Canada

• Individuals: All individuals are required to file an income tax return by April 30 (or the Monday following if this falls on a weekend).
• Self-employed: If you or your spouse are self-employed, you can file your income tax and benefit return by June 15 (or the Monday following if this falls on a weekend).
• Corporation: If you’re a small business owner and has incorporated your business, you will file according to your fiscal year end date.

What happens if you file your taxes late?

To understand the consequences of not filing taxes, let’s understand the difference between tax evasion, tax fraud, late tax filing, unfiled tax returns and unpaid taxes? In Canada, these are different situations and the consequences of each are also different.

• Tax evasionis the deliberate falsification of your tax return, either by not reporting income or falsely claiming expenses. Tax evasion has serious consequences and is an offence under section 239 of the Income Tax Act and section 327 of the Excise Tax Act. If convicted of tax evasion, you must repay the full amount of taxes owing, plus interest and any penalties assessed by the Canada Revenue Agency (CRA). Courts may impose a 5-year jail term or a fine of up to 200% of the evaded taxes amount.
• Tax fraud is an offence under section 380 of the Criminal Code and involves using deceit, falsehoods and any other fraudulent means to defraud a person or the public of money or anything else of value.
• Late tax filingincurs a late filing penalty. For repeat late filers the penalty is increased. Under the law you are required to file your tax return and pay all taxes owing by April 30 of the following year (or the Monday if this falls on a weekend). If you do not file a return, and are required to pay taxes, you will be assessed a penalty of 5% of the amount owing plus 1% for each month it is past due, up-to 12 months. You will also be charged compound daily interest on any outstanding tax.
• Unfiled tax returns will normally lead to late tax filing and therefore penalties but can also result in prosecution (although not the usual course that CRA takes). Not filing taxes is considered a crime so that can lead to jail time and a criminal record. Late filing penalties, interest, and other fees add up the longer you go without filing.
• Unpaid taxes result in interest charges on the balance owing. There are no further penalties or prosecution.

What can I do now to file late tax returns in Canada?

The CRA offers a Voluntary Disclosures Program (VDP) that could allow taxpayers to file past returns without penalty. If you have unreported taxable income, ineligible expenses or unfiled information returns, you may be eligible for relief through the 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.

Conclusion

It’s never too late to rectify your tax situation and file back taxes, but it’s important to know your options. Ignoring the problem does not make it go away and the sooner you file, the less you have to pay in interest penalties. If it’s been a few years or more, the VDP may be right for you depending on your situation.

Whatever your solution, it’s crucial to act quickly and file your back taxes so that you receive your tax benefits and aren’t faced with any future penalties. DM Tax has the experience and skill needed to successfully navigate complex CRA processes and resolve your tax dispute. Contact us today to book your consultation.