You haven’t done your taxes for a year or two or more – yikes – now what? Bottom line: get on it, quickly, and more important, start a relationship with a qualified tax professional who has taken a recent audit defense course.
While I am a big fan of tax software, representing you to CRA is the one thing tax software won’t do for you, although some companies may offer to link you with a tax pro who can help.
Is tax filing procrastination common? Yes, more common than one would think…there are millions of procrastinators out there, judging by the response we get during our Audit Defense workshops for professional tax and wealth advisors across Canada every year. There is a brisk business in helping delinquent taxfilers catch up all year long, and these folks are often years behind. Most commonly, they procrastinate because they can’t pay their bills to CRA.
CRA has recently been more aggressive in going after people who don’t file and fining them. The convictions lists have become longer in recent years, for failure to file, in particular. On February 13, for example, a Brampton, Ontario lawyer who failed to file his T1 income tax returns for the 2009 and 2010 tax years, was fined $1,500 per count, for a total of $3,000 and given six months to pay the fine. In another case in January, a Thornhill, Ontario lawyer, pleaded guilty to 25 counts of failing to file tax returns for various periods between 1999 and 2007. He was fined a total of $28,000 and was given twelve months to pay the fines.
The good news is that many people find that CRA actually owes them money when they do file. Filing is important from a tax efficient investing point of view as well – it’s your ticket to creating RRSP contribution room. Filing a return also provides access to refundable federal and provincial tax credits. And, if you have missed an important and lucrative provision like moving expenses, child care, employment expenses, disability or tuition, education and textbook credits, on a previously filed return, you can request an adjustment up to ten years back. That’s a great way to recover “tax gold”.
Three steps to take now if you are a tax delinquent:
- Dig out your receipts and documents from the delinquent years and get them in reasonable order. Take the time to contact employers for missing T4 slips, banks for missing safety deposit box slips and get duplicate medical, child care, tuition, charity, and other slips if missing. That will save you cash on your tax preparation fees.
- Make an appointment with a certified tax practitioner today. Look for the MFA or DFA-Tax Services Specialist designation. These pros are trained to work in a team with other financial professionals and the CRA. Ask about fees, guarantees of service, and whether they will represent you if CRA has questions.
- Set aside some money to pay your tax bill if necessary, and/or have your tax pro negotiate payment over time for you.
It’s Your Money. Your Life. If you owe money to CRA, it’s going to be expensive to ignore it – and it won’t go away. Your relationship with a tax professional can really pay off if you want to avoid confrontation with the tax man. The best defence? File an audit-proof tax return every year on time.
Evelyn Jacks is President of Knowledge Bureau which offers the MFA and DFA-Tax Services Specialist Designation Programs available 24/7 as well as the Audit Defence Workshop, May 22-27 in Winnipeg, Calgary, Vancouver, and Toronto.