Have you ever filed your personal tax returns after the filing deadline? Are you still behind by a year or even longer? Have you ever wondered what happens when you are late?
In this quick article, we will outline what happens if you file taxes late, and what some options are to help mitigate any increased taxes, interest, and penalties.
What happens if I file my personal T1 tax return late?
For many Canadians, personal income tax returns are due on April 30th of every year (where April 30 falls on a weekend or statutory holiday, the due date is generally extended to the next working day). With few exceptions available - including for people who are self-employed (June 15) - the filing deadline is something that should be planned for.
Missing these tax filing due dates can cost you more than just interest and penalties!
Late Filing Penalty and Interest
If you have not filed your returns by the deadline, the CRA will impose a penalty of 5% on the balance owing, even if you are one day late. Then, for every month that the return continues to be late, there is an additional penalty of 1% of the balance owing.
If this isn't your first year filing taxes late, these penalties will be increased.
In addition, you will be charged compound daily interest starting with the first day after the deadline, calculated using the CRA’s prescribed interest rate on outstanding taxes. That interest rate is definitely higher than what the bank pays you on your savings!
2. Loss of Benefits and Credits
Delaying your tax filing may result in reductions and delays in receiving certain benefits and credits, such as child care benefits, GST credits, provincial sales tax credits, among others. This is because eligibility for these credits is often based on income and other data found in filed tax returns.
3. Audit or Review
Filing your returns late may come with the possibility of an increased likelihood of being selected for review or audit by the CRA.
4. Negative Credit Rating
Continuous failure to file taxes can have other significant negative financial effects, including possibly affecting your credit rating and your ability to access loans or mortgages, since many lenders require proof of income in the form of a verified Notice of Assessment issued by the CRA.
Important Notes
If you are unable to pay a tax balance owing, contact the CRA to sort out payment options. This can often avoid penalties and interest charges.
If you do not owe any taxes, there is no penalty or interest cost to filing your tax returns late. However, there still may be interruptions on your benefits.
In certain circumstances, the CRA may choose to waive part or all of any interest or penalty calculated on late filed taxes, under various programs generally referred to as “fairness relief” programs. The specific circumstances and eligibility criteria vary and are not always easy to understand or qualify for.
If you have missed your filing deadline, it is a good idea to file your taxes as soon as possible. We can help you.
Are you already late and need help filing? Book a free consult here.
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