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All Canadians have to file their tax returns every year. And unless the Canada Revenue Agency (CRA) announces an extension like it did in 2020, individual taxpayers must pay their taxes by April 30, 2022 for the 2021 income year.
Filing your taxes late and not filing your taxes at all can have severe consequences. Read on to find out what could happen if you don’t file your taxes, how to file your personal income tax and benefit return, and more.
Here’s What Could Happen if You Don’t File Your Taxes
Some Canadians may be tempted to avoid filing their tax returns on time because they can’t afford to pay what they owe. They hope that the CRA might ignore their late or missing filing and get away with it.
However, the CRA has multiple systems in place to find out if you have unpaid taxes. One of those systems enables the CRA to receive a copy of the T4 slips issued by your employer, making it easy for the agency to determine whether you paid your taxes or not.
And once the CRA finds out that you haven’t paid your taxes, you have to pay whatever you owe in full plus a late filing penalty of 5% of what you owe and an interest of 1% for every month you are late, compounded daily starting May 1st for up to 12 months. If you know you owe taxes, doing nothing will only make things worse. Fortunately, there are several options available if you owe taxes and can’t pay.
In other words, failing to pay your taxes can attract a penalty of up to 17% of what you owe plus interest, making it more difficult to repay your tax debt. And that’s not all. Not filing your tax returns is also a criminal offence.
Criminal offence
Failing to pay your taxes is not a crime, but failing to file your tax returns is because it’s considered tax evasion. And the penalties for tax evasion are harsh. According to Section 238 of the Income Tax Act, failing to file your tax return can result in a fine of $1,000 – $25,000 and up to one year in prison.
Section 239 of the Income Tax Act states that anyone who is convicted of tax evasion can pay a fine amounting to anything from half to double the amount they were trying to avoid paying. In addition to a fine, the offenders may also face up to two years in prison.
Interest & Penalties
The CRA will charge a late-filing penalty of 5% if you don’t file your tax returns by April 30, plus an additional 1% for every month after that date until you pay, up to 12 months. If the CRA charged you a late-filing penalty for any of the last three tax years and requested a formal demand for a return, it will charge you a late-filing penalty of 10% of the balance owing, plus an additional 2% for every month after the due date for up to 20 months.
And the agency will charge interest on any taxes you owe if you don’t pay them on time. The interest rate charged on your current or previous balances may change every three months according to prescribed interest rates.
You may also have to pay a tax instalment penalty if you can’t make your instalment payments or if you pay them late, but only if your instalment interest charges amount to over $1,000.
You may ask the CRA to cancel or waive interest or penalties if you can’t meet your tax obligations due to circumstances beyond your control. If this is the case, the CRA may grant relief within 10 years from your request date.
Canadian corporations are subject to the Canada Business Corporations Act (CBCA), so different rules apply when it comes to filing their tax returns.
The deadline for filing a corporation’s tax return is within 60 days after the corporation’s anniversary date. The date your corporation was incorporated under the CBCA is considered its anniversary date. You can find this date in the corporation’s Certificate of Incorporation, Amalgamation or Continuance or in the online database.
All the corporations that have an active legal status have to file their taxes, no matter how big or small. If you don’t file your annual return, your annual filing will show up as overdue, which means that your corporation will not obtain a Certificate of Compliance.
Corporations Canada sends out a reminder notice to let you know that your annual return is due by post or email. If you fail to file your annual tax return, you risk having your corporation dissolved.
Filing Taxes Late In Canada
Filing your tax return late will lead to a late filing penalty of 5% of the balance owing, plus 1% interest of the balance owing for every month you’re late, for up to 12 months.
If you’ve been charged a late-filing penalty in any of the previous 3 tax years, you will be charged a penalty of 10% of the balance owing, plus 2% interest for every late month until you pay, for up to 20 months.
Is There a Penalty for Filing Taxes Late if You Owe Nothing?
Filing your taxes late, even if you don’t owe anything, can lead to complications.
Filing your taxes late when you don’t owe anything won’t result in significant interest rates because the CRA can’t apply interest on taxes you don’t owe.
However, not filing your taxes can lead to other issues. For example, not filing your taxes on time may disqualify you from government benefits or certain assistance programs, including the Canada child benefit (CCB), Guaranteed Income Supplement (GIS), or the GST/HST credit.
Not filing your taxes on time may also affect your ability to qualify for other benefits or assistance programs running in different provinces and territories.
Filing Your Tax Return
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.
Tax Deadlines In Canada
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 in up to six months after the end of the tax year, so this date will vary according to the corporation’s fiscal period.
Tax Credits & Benefits
It’s important to know that you may be eligible for tax credits and benefits. There are two different types of tax credits you may be eligible for:
- Refundable tax credits – this type of tax credit can reduce the amount you owe, but may also be available even if you don’t owe any tax. A good example of this is the Ontario Energy and Property Tax Credit.
- Non-refundable tax credits – may reduce the amount you owe. You may be eligible for this type of tax credits for donations and gifts.
You can check out the CRA forms, guides, tax packages and more in the General Income tax & benefits guide.
How to apply for tax credits and benefits
You have to file your tax return in order to apply for tax credits and benefits. If you apply using a tax return software, you will automatically have to answer questions about tax credits and benefits.
If you file a paper tax return in Ontario, you will have to complete and submit the ON479, ON-BEN, and ON428 forms in order to access tax credits and benefits.
Tax Return Dos and Don’ts
Do's
- Allocate enough time to do your taxes to reduce the chances of making mistakes that could cost you in the long run
- Keep track of your income throughout the year to make tax season less stressful
- Check to see if you could transfer any credits so you can take advantage of it
- Double check everything
Don'ts
- Don’t leave your taxes for the last moment
- Don’t get professional help if you can file your taxes yourself using software. Tax programs cost $30 - $50, which is significantly less than professional help.
- Miss your filing deadline
Tax Return FAQs
How long can you go without filing taxes in Canada?
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.
What is considered tax evasion in Canada?
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.
Can the CRA check my bank account?
Yes, the CRA can check and freeze your bank account.
Can I file 2 or 3 years of taxes at once?
Yes, you can. However, that may attract some penalties. And the later you pay, the harsher the potential penalties.
Contact one of our LITs and find out how you can stop the CRA wage garnishment today. We offer free, no-obligation consultations. Contact us today and take the next steps toward tax debt relief