Preparing a tax return, even if your part is only gathering all the information for your accountant, can be an overwhelming and stressful chore. However, it’s a task which must be done every year. It ranks right up there with spring cleaning around the house and yard.
Many have a tendency to procrastinate and push the deadline as far as midnight on April 30th. If you step over this deadline, then you may face interest and penalties. If you are a proprietor of an unincorporated small business, your deadline is June 15th. However, tread cautiously. If you owe taxes as a result of your business income, the tax bill is still due and payable on April 30th. The most sensible thing to do is to file your tax return by the end of April. You want to avoid adding more money to the government coffers with interest charges on the balance due.
The best rule is to follow Thomas Huxley’s advice. “Do what you should do, when you should do it, whether you feel like it or not.” This is the power of discipline.
Why Should We File a Tax Return?
I believe we need to understand “why” we need to do something to motivate us into action. Once we know “why” then we are apt to file our tax returns on time.
1. One reason for filing a tax return is to take advantage of applicable tax credits to reduce the amount of taxes payable. Your income information slips report only your income and the minimum required deductions but other eligible provisions may lower your taxable income further. Specific examples are tax deductions like RRSP contributions or tax credits for a dependent child under the age of 18. Ultimately, the result is the possibility of a “tax refund” once the calculations are completed.
2. Another reason is you may be eligible for money through one of the government’s social benefit programs once your return is filed. Without taking the initiative of reporting your income, you may be saying "No thank you" to money that rightfully belongs to you. Depending on the level of your combined family income, you may be eligible for the GST/HST credit benefits or Child Tax Benefit.
Other social benefit programs for people over the age of 65 are Old Age Security and Guaranteed Income Supplement. The Allowance provides a benefit for those between the ages of 60 and 64.
3. Your tax returns keep you “in the know”. If you are not a financial guru, your return may be the only document to tell how you are doing from an income vantage point. Are you descending or ascending the income ladder?
4. If you are still not totally convinced that you should file a tax return, my last resort is you have to do this because it is the law. There are late-filing and failure-to-file penalties in addition to the interest charges due on outstanding taxes. Coming up with the money to pay taxes is difficult; we certainly don’t want to add additional charges to the balance. If you choose to ignore Canada Revenue Agency (CRA), they will chase you for the money that rightfully belongs to them.
5. When you are self-employed and are applying for a loan, the one way for a lender to verify your income is your annual tax returns for the last three years. No verification of income means no loan.
Why Are We Reluctant to File Our Tax Returns?
The most likely reason for failing to file a tax return is quite often linked to fear. We may be afraid we may have a tax bill and won’t have the money to pay CRA.
In the Toronto Sun news article, Failure to file taxes could bankrupt you, John Waters, head of tax and estate planning at BMO Nesbitt Burns, says, if you’re struggling to meet the deadline, even if you don’t have the money to pay, "at least file to stop the bleeding on that 5% penalty and just get hit with the interest charges on the unpaid taxes."
The truth is you don’t want to get on the wrong side of Canada Revenue Agency (CRA). Even when you file your return and are unable to pay the taxes, you should explain your situation to CRA. If you don’t, CRA is a powerhouse with the ability to collect the money. Funds can be garnished from your bank account to satisfy the debt. Your financial institution will receive a “requirements-to-pay” order (also known as a Third Party Demand). If the money is not in your account at the time, then your account will be frozen. The Third Party Demand will only be lifted once the payment has been made or at the very least satisfactory financial arrangements are in place to have the order removed. To read more, click here to read, CRA Garnishments: Requirement to Pay Tax—A Canadian Tax Lawyer Analysis.
How Can We Overcome the Obstacles?
Once we understand that we can run but we can’t hide from CRA, we need to take a proactive approach and prepare for the yearly routine of submitting our tax returns.
- The first step to eliminate our feelings of frustration is to find a method to keep all our important documents in one place. With unlimited access to the Internet, we can always search for ways to organize our tax information.
- If you can’t do this yourself, the second step is to ask for help. There are people, even friends, who are “number people”. They would love to help us get organized and stay organized.
- Lastly, we can pay for the service of a professional tax accountant to prepare our tax returns.
The completion of an onerous task results in the greatest feeling. This is especially true when our tax returns are filed on time and our relationship with Canada Revenue Agency is maintained. There is a reward at the end for doing this. If it’s not money, then it is peace of mind or if we are lucky, it might even be both.
If you need additional information, the Government of Canada has prepared a series of videos, Preparing your Income Tax and Benefit Return. These videos may provide helpful information for you.