Haven’t Filed Your Tax Return Because of Tax Debt? An In-depth Analysis
Unpaid taxes are a common issue many Canadians face. The fear of not being able to pay taxes often leads people to avoid filing their taxes altogether. This, however, only exacerbates the problem and it’s crucial to understand how to approach such situations.
Why People Fear Filing Tax Returns
There are numerous reasons why Canadians may dread filing their tax returns. For instance, they might not have paid sufficient withholding taxes while earning as self-employed individuals or could have cashed in RRSPs, leading to additional income and subsequently, unpaid taxes. Other possibilities include working multiple jobs or receiving pension or investment income without making adequate installments.
What Happens When You File Taxes Late
When you file your income tax return after the due date with an outstanding tax balance, the Canada Revenue Agency (CRA) will charge a 5% late filing penalty. Additionally, a further 1% of your balance will be charged for every full month your return is late, up to a maximum of 12 months. CRA will also accrue interest on the unpaid balance.
Ramifications of Not Filing Taxes
If you avoid filing your tax return and the CRA believes you owe them money, they have the authority to estimate your taxes and issue a tax assessment. This arbitrary tax assessment could account for income tax, payroll source deductions, and GST or HST. Not filing your returns could result in an inaccurate evaluation of your owed amount.
How The CRA Handles Unfiled Taxes
The CRA has its own way of dealing with unfiled taxes. It may issue an arbitrary tax assessment for income tax, payroll source deductions, and GST or HST. Avoiding filing your returns is not advisable as the CRA may overestimate how much you owe.
Why You Should File Outstanding Tax Returns
Having your outstanding tax returns prepared and filed is vital so that the debt is known and a plan to manage the debt can be arranged. This crucial step ensures that you are dealing with the problem head-on rather than avoiding it.
Dealing with Unmanageable Tax Debts
If your taxes and other personal debts become too much to handle, there are formal options available to give you a fresh financial start. These options can be explored with the help of a Licensed Insolvency Trustee.
Consumer Proposal for Tax Debts
One option to manage your tax debts is to file a consumer proposal. However, the CRA will not be willing to negotiate a settlement until all past tax returns have been filed.
Necessity of Keeping Future Returns Current
The CRA requires that all future tax returns must be kept current as a pre-requisite for accepting any proposal. This means that you must commit to filing your tax returns on time in the future.
The Importance of a Well-structured Debt Plan
Confirming how much you owe and then making a plan to deal with your debts is an essential step towards financial stability. Avoiding the problem will only lead to more issues down the line.
When to Contact a Trustee
If you find yourself unable to pay your taxes, it may be time to contact a Licensed Insolvency Trustee for a free consultation. They can provide valuable advice and guide you through the process of managing your debts.
Understanding Back Taxes
Back taxes refer to taxes that were not paid when due. These can accumulate over time and lead to significant financial stress if not addressed promptly.
Tax Refunds and Bankruptcy
In the event of bankruptcy, it’s important to understand how your tax refunds will be affected. This can dictate the approach you take towards managing your financial situation.
Remember, fear is the enemy of progress. Avoiding your tax returns because of fear of owing money to the CRA is not the solution. Instead, acknowledging the issue, filing the returns, and confirming the amount you owe is the first step to making a plan to deal with your debts. After all, you do have options, so there is no need to fear.
