If the government will owe you money, go ahead and file your late returns. Note though that if you are a small business owner and your past due returns are more than 4 years old, you will not be entitled to the HST/GST input tax credits which could result in an unanticipated tax debt.
What if you anticipate that you will have a tax debt? Brace yourself, because once late filing penalties and interest are added the total tax debt will likely grow exponentially.
How you go about filing your late income tax returns will depend on different factors.
If the debt is more than 1 year old and CRA has not contacted you by mail or by phone requesting that you file any late returns then you may be a candidate to file an application under the Voluntary Disclosure Program (VDP). The VDP is a program created by CRA whereby if you disclose income to them before they learn of it on their own, they will accept your tax filing and you will not be subject to penalties for late filing and the interest you pay is at a markedly lower rate.
If CRA has contact you by mail or by phone requesting that you file your late returns – you must get them filed as soon as possible. You cannot just refuse to file your returns – it is against the law (tax evasion is a criminal offence). Once your late returns are filed it is true that having a tax debt may be stressful, however there are different solutions to deal with a tax debt:
- A payment plan with CRA – this can be a tough negotiation if you need more than a month or two so that should be undertaken by a professional
- A lump sum payment and then direct payment plan
- Borrowing against an asset like a home or investment to raise the capital to pay in full
- If none of the above are viable options, seek out a professional who specializes in these types of tax problems who can provide protection to help you deal with the financial aspect of your tax problem without losing everything that you have.
Also, if you are suffering from extreme financial hardship, a medical problem or some extraordinary circumstance has led to your tax problem you may qualify to have some or all of your penalties and interest cancelled through the Taxpayer Relief Program.
The thought of having to get late returns filed is fun – but it is better to just deal with it now and move forward on a fresh footing than face terrible CRA consequences.
For more information about how to get late returns filed please visit www.taxsolutionscanada.ca or call 1-888-868-1400.