Tax Survival for Canadians. Dale Barrett
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to file a return. In this case, failure to produce the return can result in a referral to the Public Prosecution Service of Canada for charges, and a trip to court for a trial.
The CRA learns about failures to report income from a variety of sources including anonymous tips, information gathered from financial institutions, and other taxpayers during the course of an audit. The CRA has been known to find undisclosed earnings, such as finding information about third-parties or employees during an audit. This could include instances of bonuses being paid yet undisclosed, or other earnings that do not match between parties.
5.1 Interest accrual
If you have unreported income, you can expect to pay interest on that income. Interest accrues from the date disclosure or when the filing should have occurred. The interest rate fluctuates each quarter. It is always higher than bank interest, so using the CRA as a lender is not a wise choice. Since interest accrues from the filing due date and is compounded daily, it does not take long before your taxes become difficult or impossible to repay. Since a debt to the CRA can double in as little as seven years depending on the interest rates, you can imagine how many people have been led to financial ruin or bankruptcy as a result of late filing.
5.2 Penalty imposition
The CRA’s late filing penalties are designed to be tough, and I have heard of a great deal of taxpayers who have lost their homes or who have had to declare bankruptcy because of the penalties.
If a taxpayer has not filed his or her taxes, he or she will automatically be subject to a late-filing penalty. Late-filing penalties are applied automatically when late returns are processed, although they can be reduced after the fact through a request for taxpayer relief, but they are not discretionary and outside of the protection of the Voluntary Disclosures Program (see Chapter 10 for more information).
Penalties vary depending on whether the taxpayer is a repeat offender. If penalized for the first time, the taxpayer is penalized 5 percent of the balance owing in addition to 1 percent of the balance owing for every month it is late to a maximum of 12 months. If, however, the taxpayer is a repeat offender, the penalty doubles to 10 percent of the balance owing in addition to 2 percent of the balance owing for every month it is overdue to a maximum of 20 months. Furthermore, penalties are charged interest, which are compounded daily.
5.3 Fines or imprisonment
The CRA can have the taxpayer charged for tax evasion. It can come in the form of a charge for failure to file or tax evasion. If the taxpayer is unsuccessful at trial, besides obtaining a criminal record which will follow the taxpayer for the rest of his or her life unless he or she obtains a pardon, the loss of a trial can mean serious fines of up to $25,000 per count in the case of failure to file an information return. Further, the taxpayer may be subject to being imprisoned upon a conviction, and written up on the CRA’s website in the Media Room section under “Convictions.”
6. Tax Preparation
Millions of tax returns are prepared each year in Canada. Many people turn to professionals to prepare their returns, and as computer literacy has increased, more people have started to prepare their own returns either online or with purchased tax software.
It does not matter how you have your return prepared or how you file — as long as the return is correct and filed on time. If you wish to manually prepare your own General Income Tax and Benefit Return, it is accessible on the CRA’s website. You can download, view, and print the return. If more convenient, a hard copy of the package, as well as other CRA publications and forms, may be ordered directly from the CRA website.
6.1 Tax software
Many paid commercial and non-commercial tax preparation software packages exist in order to prepare your tax return either on your computer or online. Freeware or non-commercial tax preparation software is available online. Additionally, for the budget conscious do-it-yourselfer, tax returns may be filed online free of charge through NETFILE, a CRA run service.
In order to be sure that the software or online tool that you choose is compatible with the CRA NETFILE electronic tax filing service, you must ensure that the software chosen is CRA certified. The earliest time to check the list of certified commercial software is in late January, as the software is tested and certified by the CRA sometime between December and March. The CRA provides a list of certified software programs on their NETFILE website (netfile.gc.ca).
If you choose to use the NETFILE system or any other online filing system, keep in mind that not all returns may be filed online. You cannot file online if you —
• are in the process of bankruptcy,
• are filing for previous years (you can only file online for the current tax year),
• have never filed a tax return with the CRA before, and
• are not resident of Canada.
6.2 Using an accountant or a tax return preparer
A great many Canadians engage the services of accountants and tax return preparers each year during income tax season.
One thing to consider when you are getting help is that not all help is good help. In fact, a great deal of my clients are taxpayers who need assistance sorting matters in which their “accountant” had led them astray or given them poor advice or service. Invariably they refer to the person who was doing their taxes or handling their negotiations and dealings with the CRA as their “accountant,” yet in many cases the person was not an accountant at all. Oftentimes, the client had engaged the services of somebody who was unreliable or unqualified.
“Accountant” is not a protected word, unlike the words “police officer” and “lawyer.” That is to say that anybody may claim to be an accountant or may provide accounting services, even if they are not a licensed or credentialed accountant, whereas not everybody can call themselves a police officer or lawyer.
This is not to say that you should always engage a Chartered Accountant to prepare your tax returns. If your taxes are simple, you may fare much better by having a tax return preparer do your taxes. If the preparer knows what he or she is doing, the returns will likely be correct and you will pay a much lower rate than the Chartered Accountant would have charged you. However, if you have a more complicated tax return, you may want to seek the type of a tax professional that you believe would be best suited to give you advice. It may be a Certified General Accountant, a Chartered Accountant, or even a Tax Lawyer depending on the issues and the level of complexity.
As always, read your return and verify the contents before signing — regardless of who prepared it. Once you sign the return, you become liable for any inaccuracies, and you can be severely penalized or punished for false statements.
7. Things to Consider When Preparing Your Return
The following three sections discuss things you should consider when preparing your tax return or late tax returns.
7.1 Amended tax returns
Sometimes a taxpayer must file a return with all the information he or she has at the time — even though some information may come at a future date. In this case, the taxpayer is not necessarily evading taxes, but he or she is filing a return with an estimate built-in. Once the information becomes available, there is a process by which the tax return can be updated to reflect the true figures. In order to update or make changes to a personal income tax return that was previously filed, the CRA prefers that the taxpayer complete a T1 Adjustment Request (T1-ADJ) form, rather than to file an amended return. The T1-ADJ can be found on the CRA’s website as well as in the offices of local tax service providers.
Once the T1 Adjustment Request is received by the CRA, it can either process it as filed, or it may choose to audit the request to verify