Forget to file a tax return in a previous year? It can pay handsomely to catch up before year-end. Not only can you recover tax refunds CRA may still owe you (that’s the main reason for most), but here are 8 additional reasons to file those missed returns before year-end:
- To receive missed benefits and credits: The GST/HST Credit, the Canada Child Benefit, the Refundable Medical Expense Supplement, or available refundable provincial tax credits provide generous tax free income sources, but to claim them you must file a tax return. Low income earners should file to receive the Working Income Tax Benefit (WITB) or apply for advance payments in the new year, when this credit will become known as the Canada Workers Benefit.
- To create more RRSP contribution room and carry forward deductions: This is an important opportunity to maximize your retirement income while you are reducing net and taxable income so as to pay less tax and receive more benefits.
- To split pension income: To take advantage of pension income splitting with your spouse you must file an annual election. This is required by April 30. Use Form T1032 to do so. Amending or revoking elections is also possible but only for up to three calendar years after the filing due date for the year in which the election applies.
- To harvest losses for use in reducing past or future income: The reporting of non-capital and capital losses is often missed. Non-capital losses can occur from employment, investment, self-employment and rental ventures, whereas capital losses occur when disposing of assets for less than their adjusted cost base. Generally, these losses offset other income in the current year, and then can be carried back to offset income in the previous three previous years. To do so use Form T1A Capital Loss Carry Back. Unabsorbed losses still remaining can then be carried forward 20 years in the case of non-capital losses, or indefinitely in the case of capital losses.
- To maximize claims for students: Be sure to file missed prior returns to help with education funding: transfer unused tuition amounts to supporting individuals, but only if the student isn’t taxable. Students can also carry forward unclaimed tuition, education or textbook amounts from prior years into the future when income is taxable. Student loan interest can be carried forward, too, for up to five years.
- To maximize use of medical expenses and charitable donations for the disabled and their supporting individuals: File a tax return to carry forward unused charitable donations (you can do so for up to 5 years). Medical expenses can be claimed in the best 12 month period ending in a tax year.
- To qualify for OAS/GIS Supplement and certain provincial health care benefits: You may be missing out on the federal income supplement for low-income seniors (Guaranteed Income Supplement or GIS) or certain provincial “pharmacare” plans when you fail to file the correct application forms. The entries on your tax return are required to verify income for these purposes.
- To avoid interest, gross negligence or tax evasion penalties. If you owe taxes to the CRA for prior years, your catch-up efforts will help you avoid expensive penalties and interest, which is a great way to go into the new year!
Bottom Line: Catch up on your tax filings before December 31 to maximize all your tax filing rights in the 10-year period starting January 1, 2008. That 2008 tax filing year and all its refunds, carry-forward provisions and benefits will be unavailable to you – forever – if you miss this deadline.