There’s Gold in Filing Missed Returns Before Year End

Taxpayers might benefit twice by filing missed returns by year endóonce to ensure tax year 1999 doesn't fall off the boards because of the 10-year statute of limitations enforced by CRA for such voluntary compliance under the Taxpayer Relief Provisions. But those who file late and owe can also avoid expensive late filing penalties.

Based on what The Knowledge Bureau heard from professionals on its recent Distinguished Advisor Regional Workshop Tour, there are plenty of late filers out there. This is never a good idea especially when CRA owes you money, as you have continued to give the government an interest free loan. Worse, however, is when you owe them; and yes, they will be charging you interestócompounded dailyóand more.  And remember, a return should be filed every year in order to accumulate TFSA contribution room and Registered Retirement Savings Plan room.

Voluntary compliance can really pay off when you help a client to file a tax return to clear up their guilty conscience. CRA will not charge penalties if they are told about tax indiscretions before they uncover them ó and there are specific penalties that apply if you are a chronic late filer. There are several layers of penalties that can be invoked including interest, compounded daily, at the prescribed rate of interest, plus 4%. Those kinds of penalties can be downright painful!

File 1999 Return Before December 31

To comply voluntarily, tax advisors should remind their clients to see them before year end for details regarding all under-reported income, over-reported deductions or credits and file form T1ADJ to correct errors or omissions. Remember, tax filing year 1999 will be statute barred after the end of this year, so if CRA owes a client a refund, it will be lost if it is not claimed in December.

In fact, this could all turn out well if you hurryóan unexpected refund from an adjustment or late filed return could help your client with the credit card payments in January!

Non-Compliance Penalties

• Late filing penalties ófirst time: 5% of unpaid tax plus 1% per month for 12 months; second time within a three year period after demand to file: 10% plus 2% per month for 20 months
• Failure to file a return ófor each such failure, the greater of $100 and the product obtained when $25 is multiplied by the number of days, not exceeding 100 during which the failure to file continues.
• Late or insufficient instalments ó 50% of interest payable exceeding $1,000 or 25% of interest payable if no instalments were made, whichever is greater.
• Failure to deduct or remit source deductions ó1 to 3 days: 3% penalty; 4or 5 days: 5% penalty; 6 or 7 days: 7% penalty; more than 7 days: 10% penalty
• Second such failure in same year if grossly negligent ó 20% of amount not withheld or remitted.