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How to File a Late Tax Return in Canada?

Victoria Morrison
Working on taxes from home

The 2018 tax season started on February 26 and ended on April 30. If you are self-employed and planning to file a late tax return this year, be prepared to pay late-filing penalties and interest on any balances owing.  Keep reading to learn more about what these penalties entail, how you can apply for relief from penalties and interest, and how to get more organized next year.

What was Canada's 2018 tax filing deadline?

In 2018, most Canadian income tax and benefit returns were due by Monday, April 30. Individuals with self-employed income had until June 15, 2018, to file. The same is true for Canadians with a spouse or common-law partner that garnered self-employed earnings in 2017. Self-employed workers may enjoy an extended filing deadline, but they have to pay any balances owing by April 30th.

Can you file a late tax return in Canada?

Although the CRA always encourages Canadians to file before the tax filing deadline, filing late is better than not filing at all! You can submit a late tax return using the same methods you would use to file your return on time. You can turn in your taxes using tax preparation software, mailing a return prepared by a tax preparer, or completing the CRA's General Income Tax and Benefit Package and submitting it through the mail.  If you file a late return and don't owe any taxes, there are no penalties. But, just because you don't owe the CRA any money, that doesn't mean you shouldn't file at all.  Whether you file late or on time, filing your CRA tax return is crucial if you want to collect any credits and benefits entitled to you. These include GST/HST credits, Solidarity tax credits (Quebec only), and Canada child benefit payments.  

overdue - pair of hands holding clock

What late-filing penalties you can expect?

If you file a late return and have a balance owing, you will have penalties and interest to pay. The CRA started charging daily compound interest on any balances owing as of May 1, 2018. CRA interest rates are subject to change every three months, but the current interest rate charged on overdue tax balances is six percent.  If you have a balance owing, expect to pay a late-filing penalty fee. This penalty is equal to five percent of your balance owing plus one percent for every month your balance remains unpaid, up to 12 months.  Not your first time filing a late return? If you incurred a late-filing penalty in the last three years, this year's late-filing penalty could be increased to ten percent of your balance owing. The CRA may also add two percent of your balance owing for each month your balance remains unpaid, up to a maximum of 20 months.  Evidently, filing late may be more trouble than it's worth. From this perspective, don't avoid filing just because you can't afford to pay your balance in full.  If such is the case for you, you should contact the CRA to see if you're eligible for a payment arrangement. In the future, you might also check to see whether you qualify to pay your taxes in instalments.

What are some reasons that might cause a person not to file their taxes on time?

Here are a few common reasons Canadians might have for not filing their income tax return on time, along with possible solutions.

Your balance is too high, and you're waiting until you can afford to pay it in full.

You should file your taxes anyway. Submitting your tax return without paying the balance means you'll start accruing interest on any money owing immediately, but you'll save on late-filing penalties.  If you can't afford to pay your balance in full, you might be able to make a payment arrangement with the CRA or Revenu Quebec. As of summer 2018, the interest rate for unpaid taxes is six percent.

You're disorganized, and your papers are not in order.

If organizing isn't your forte, look for a tax preparer or accountant that offers "shoebox services." These tax preparers are ready to do the sorting and cataloging for you.  Your other option is to rip off the band-aid, sit down with your papers, and sift through them. Once you start organizing your receipts, bank statements, and any other slips that might apply to your tax return, you might find that this task won't be as arduous as you had feared.

You can't find your receipts.

Since you don't have to mail any of your receipts into the CRA, consider coming up with an estimate of what your average expenses were, and submit an electronic return using tax preparation software. Once you've gathered all of your receipts, if you find that you made a mistake or missed* a credit, you can go back and file an amended return. This solution also applies to individuals who are procrastinating as a result of disorganization.

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You can't find or think you can't afford a tax preparer.

If you can't afford to hire a CPA or accountant to prepare your taxes for you, you might be able to benefit from the CRA's Community Volunteer Income Tax Program (CVITP).  If money is not the issue and your regular person is not available to help, and this is preventing you from filing on time, you can always consider going to a different tax preparation company. Don't be shy to call all tax preparers in your area; many are fully ready to work overtime during tax season.  Finally, you can always file your return electronically using tax preparation software. Once your tax preparer is available, get your tax returns in order and file an amended return if needed.  

Mature man sitting in office with head in hands

What to do if you haven't filed your taxes for many years?

If you haven't filed your taxes in several years, try not to worry too much. People fall behind on their taxes all the time for various reasons, and the situation may not be as bad as you think.  The first thing you should do is contact the CRA. Let them know that you are aware that your account is in arrears and that you are taking steps to rectify the situation. If the CRA decides to come after you between now and the time when all of your returns are submitted, this pro-active action provides you with some degree of protection.  Next, go to your nearest CRA office and request tax forms for the years for which you need to do your taxes. If these forms are not available, they can track them down and mail them to you. These are also known as prior-year tax packages, which you can also access online.  Your best bet is to hire a tax accountant to handle this situation for you. You might also consider looking into the CRA's Voluntary Disclosures Program, which provides Canadians with a second chance to correct their taxes or submit a return that never got filed.  Under this program, taxpayers are still required to pay all of their taxes owed along with full or partial interest. However, the program protects late filers from prosecution and makes it possible to save specific penalties.  Remember, even if you owe them money, CRA employees are always polite and will never threaten you. When it comes to contacting them, you have nothing to fear.

How to apply for relief from interest and penalties

Outside of the Voluntary Disclosures Program, the CRA may cancel or waive certain penalties and interest incurred by late filers in the event of challenging situations such as:

  • Extraordinary circumstances
  • Actions taken by the CRA
  • An inability to pay or financial hardship
  • Other situations.

You can apply for relief from tax penalties up to ten years before the date of your request. Which means that in 2018, you can request to waive penalties attached to tax years ending in 2008 or later.  If you incurred interest on a balance owing, you should note that the CRA will only consider the interest accumulated within the last ten calendar years as of your request. You can make this request by filling out Form RC4288 Request for Taxpayer Relief - Cancel or Waive Penalties or Interest.

Why you should care about filing your CRA tax return

In general, filing your taxes before April 30 serves you. In fact, if you are self-employed, a large chunk of your balance owing goes to the Canada Pension Plan (or Quebec Pension Plan in Quebec). The Canada Pension Plan provides Canadians and their families with partial income replacement in the event of retirement, disability, or death.  Furthermore, according to an opinion piece in the Toronto Star, "middle-income Canadian families enjoy an average of $41,000 in public services that many couldn't afford if we didn't bulk-buy them with tax revenue." This amount is a far cry from what average Canadians pay in taxes each year.  If you have trouble filing your taxes on time, ask yourself why. Most late filers are either misinformed about the consequences of filing late or are merely disorganized. So start organizing your receipts and other supporting documents for next year, today! If doing your taxes feels overwhelming, find yourself a good tax preparer, and don't be afraid to ask for help.

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