What if your Refund is a Balance Due?

If you have been shocked to find a balance due rather than a refund, be sure to file your return before midnight April 30 to avoid late filing penalties. This is an important first step in keeping more money, even if you can’t pay your bill immediately.

Another good option for DIYers:  You may wish to have a pro look over your return (or prior returns) to see if they can find something you missed.

But don’t use the ostrich approach.  Failure to file is expensive. Gross negligence penalties of 50% of taxes owing can be added to your bill. Interest will compound on that on a daily basis.  That’s aside from late filing penalties:

• 5% of amount owing plus 1% per month for 12 months

• 10% of amount owing plus 2% per month for 20 months if you were charged a late filing penalty in any of the preceding 3 tax years.

Taxpayers who are found to participate in tax evasion will face more penalties by being charged with an offense. When a taxpayer is guilty of an offense, a criminal prosecution takes place. While in the case of gross negligence, the burden of proof is on the taxpayer; in tax evasion cases, the burden is on CRA to show that there was willful intent to understate income, overstate deductions and credits and that there is no reasonable doubt of the crime.

Those convicted of tax evasion face a series of penalties, the most common of which is a fine of not less than 100% and not more than 200% of the tax sought to be evaded or credits sought to be gained. This penalty could also be accompanied by a prison term of not more than five years.  This is in addition to the administrative penalties CRA can charge. The Bottom Line  Tax avoidance—arranging your affairs within the framework of the law to pay the least taxes legally possible—is your right and it’s legal. It’s only a criminal offence if you evade taxes, mess with the books, or stick your head in the sand and don’t file at all

NEXT TIME:  HOW LONG DO YOU HAVE TO KEEP RECORDS?

Evelyn Jacks is President of Knowledge Bureau, where you can find tax, investment, retirement, succession and business services courses.