Trying to cheat or ignore the taxman can have financial and legal consequences.
You would be surprised at how many times I get asked if a person has to file their taxes. The short of it is, if you earned any income, it is in your best interest to file a tax return this year. Either to get your own money back or determine what you owe and avoid penalties.
By now, hopefully you've marked your calendar with the May 2, 2016 deadline for 2015 tax filings. You should also spend some time getting organized and making sure you have all the materials you need like receipts, notices of assessment or reassessment, and T-slips. This will put you in a good position to file accurately and confidently and deal with any challenges may that arise.
But what happens if you miss the deadline, don't file at all, or don't report some of your income?
If you think you're going to get a refund, don't miss the deadline. You won't face any penalties, but you will spend more time waiting to receive your refund, as well as any eligible benefits.
If, on the other hand, you owe taxes, that's a different story. The main thing to remember about penalties and taxes is that they add up.
Not only is money owed due at the tax filing deadline, but you'll also have to pay daily compound interest on any unpaid amounts until you settle your bill. That means that you're going to be paying interest on top of the interest already being charged. The interest rate on overdue taxes is currently five per cent, but the CRA can change the rate every three months.
The same is true of back taxes. Anything owed from previous years gets hit with compound daily interest until you pay it off. On top of that, any payments you make will be applied to your older penalties, so the more you stay up to date with your tax filings each year, the better off you'll be.
The penalties don't end there, though. If you file late, you're going to face a five per cent charge on what you owe in 2015, plus a one per cent monthly charge. While this charge is limited to a maximum of 12 months, it's easier to just file on time and avoid this penalty.
The bottom line is that even if you miss the deadline, you can and should still file to minimize penalties.
Not reporting your full income
This one is simple. You must report your full income on your tax return. That means income from all sources -- employment, investments, freelancing or rental income.
Be careful to count income that might not make its way on to a T4 - like income earned through tips or through the sharing economy. It stills needs to be reported as part of your total income and the government expects you to account for this.
If you fail to report income twice within a four year period, you could face a "failure to report income" penalty.
• According to the CRA, the federal and provincial penalties are each equal to the lower amount between 10 per cent of what you failed to report, or 50 per cent of the difference between what you didn't claim (or, in the case of claiming extra credits, what you over-claimed) and the amount of tax that should have been withheld from that amount.
It may be tempting to try and leave a few dollars here and there off of your return. But all it takes is one simple audit request and you'll be instantly regretting that decision.
Lying on your return
Think you can get away with a little white lie on your returns? I'd give this one a second thought because falsifying federal documents is never a smart idea.
If you knowingly lie or leave out information, the penalty is the higher amount between $100 or 50 per cent of what you underreported or over-claimed. Why intentionally risk putting yourself in a position to get less back come tax time?
Thankfully, we have a bit of a grace period after filing. In most cases, the CRA allows you to fix errors, penalty-free. And there's also the Voluntary Disclosures program, which gives filers a second chance to come clean about not reporting their full income, or not filing at all. Think of it as confession, but for taxes!
If the circumstances warrant it, failing to file a tax return and/or evading taxes can result in criminal charges. In these cases, the penalties can include major fines and jail time.
Honest mistakes or not, it's never worth risking an audit and the potential penalties of filing your taxes incorrectly. You work hard for your money so it's really not in your best interest to do anything that could cause you to keep less of it. Giving yourself time to prepare and gather paperwork now will help ensure you're not missing any income and can file stress-free before the deadline.
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