If you like to be up to date on your tax returns or you feel the CRA might have you in their sights, then it’s normal to feel a rising sense of panic because of your back taxes.
Despite the temptation to panic, you shouldn’t. It is not against the law to owe tax. It’s only illegal when you receive a request to file or you’re taxable and you don’t file. Below are actionable steps you can take to avoid joining issues with the CRA.
Do your Research
Determine whether you need to contact a tax preparer or you can handle the back taxes on your own. Find out the severity of your tax situation. Have you failed to file your return for one year or several?
Find out what tax evasion means and whether it applies to you. Understand the concept of voluntary disclosure and see if it’s a step to take. The more information you get concerning the Canadian tax system, the better for you and your finances.
Put your Documents in Order
You don’t have to be told there will be a lot of paperwork to get your back taxes sorted. If you are filing personal returns, you must get your T4s and T5s. You can log in to the CRA website using the “My Accounts” feature to get copies.
You are liable to face penalties if you miss multiple tax slips. And if you’ve got credits to claim like medical and tuition, you have to get those records too. Self-employed Canadians or corporations can implement dedicated bookkeeping software to take care of documentation issues. You can also review your financial records to make sure your information is complete and in order.
Make sure you prepare draft returns for the years unfiled. The draft returns will give you some clarity about your situation and will help you make relevant choices regarding your unfiled returns.
Try to figure out in advance the best method to approach CRA concerning the total debt on your unpaid taxes. Understand that you’re liable to pay penalties for late filing as well as interest on said penalties. If you’re likely to shoulder a huge debt burden, think about ways to manage the debt without it affecting other areas of your life.
Remember that any kind of tax debt can tarnish your image in the eyes of lenders as well as creditors. It can also impact on your CPP, employment income, and pension.
As soon as you’ve completed your returns, double-check everything is in order and submit to the CRA.
Ensure your assessments corresponds with what you’ve filed, including the penalty payments and interests. Remember that unfiled returns for more than a year accumulate on the assessment. More often than not, the CRA won’t tally multiple years at once.
However, the most recent year always contains all the cumulative debt owed; do not tally all the years together to prevent unnecessary panic. If you notice any discrepancies on the assessment, you can notify the CRA to address them.
Pay Your Debt
You can arrange your tax payments with the CRA, but you shouldn’t make promises you cannot afford to keep. The collections department of the CRA have inflexible payment guidelines you must follow.
A good tip is to be forthright with the CRA and try not to misrepresent the facts. If you’re having difficulty paying your debt, you can consolidate or file for bankruptcy. The former makes it easier to manage your payments, and the latter is not the end of the world.
Now you know what to do and how to do it, there’s no better time to get your back taxes sorted than now. If your back taxes are very late too much for you to handle, you can consult the services of a financial professional.