Yahoo Finance What happens if you file your taxes late, or not at all?
It can be fun to imagine just not paying income taxes and spending that extra thirty-odd percent of your paycheck on vacations and a nicer car. It’s also easy to just put off doing your return, because math is no fun and doing taxes forces you to dig through drawers for crumpled receipts.
But paying your taxes late or not at all (besides being wrong, of course) has consequences that in the end will just end up eating up a bigger chunk of your hard-earned money.
According to government data, Ottawa takes in around $150 billion per year in personal income tax revenue.
Many Canadians rarely have to worry about this sort of thing, because employers typically withhold taxes ahead of time, so tax time means you could be expecting a refund.
But there are still many who have to cut a check to pay their taxes, and with the amounts involved, it’s easy to see why the government is serious about collecting all of it. To try and do that, Revenue Canada has a menu of financial incentives that kick in the moment your tax filing goes overdue.
“I think most people do try to pay before April 30 because of the penalties involved,” says Andrea Dickinson, a tax lawyer with Morris Kepes Winters LLP in Toronto. “Starting May 1, CRA will charge you interest on the amount owing. At the moment it’s 5 percent on a daily compounded basis. That adds up pretty quickly.”
So on a $10,000 tax bill, that’s a $500 hit right out of the gate.
After that initial 5 percent hit, the penalty is an additional percent per month, which means that if you’re a full year tardy, you’d be looking at a 17 percent rate.
For repeat offenders, the hit is steeper. If you’ve been late in any of the past three years and you’re late again with this year’s return, the CRA could impose the repeated failure to report income penalty. This can as much as double the normal late charges, with an initial penalty of up to 10 percent of your unpaid taxes, and then two percent per month.
It may not bankrupt you, but it probably makes it worth it to be on the ball about this. “It’s a fairly harsh penalty,” says Dickinson.
There is a difference between paying late and filing late. If paying on time is an issue, you want to at least file on time, which gives you some leverage to negotiate payment options.
If you file, but don’t pay at all, you may fall off the radar, but not for long.
“Eventually someone from collections will get in contact with you. Depending on the balance, usually it starts off with a letter, “ says Dickinson.
If things go on too far from there, Ottawa has the power to take “various collection actions,” she says. For instance, the government can contact your employer and garnish your wages. They can also do this through the bank. How quickly this happens can depend on how heavy CRA’s workload is.
Of course, if you’re one of the lucky masses who are expecting a refund this year, you may think filing on time isn’t a big issue, and you’re partly right: nobody’s going to come after you for failing to claim what’s coming to you.
However, there are still drawbacks, the obvious one being that you don’t get your money.
“If you file late, and you’re owed a refund, it’s only your problem, because you’re not getting the money as fast as you could,” says Jamie Golombek, managing director of tax and estate planning at CIBC.
“You’re loaning your money to the government interest-free.”
There’s another hiccup that’s new this year. If you have children and qualify for the new Canada Child Benefit, you must file a return in order to get it, even if you have no income.
With that benefit alone worth as much as $6,400 per child under the age of six, depending on your income level, it makes it worth biting the bullet and filling out the forms on time.
