Filing your tax return may seem like an unnecessary task if you earned little to no income during the year. Or if you are expecting a refund, your attitude may be that there is no rush to file by the April 30 tax deadline. However, there are some very good reasons to file your tax return on time every year.
Part of your financial plan
Tax planning and filing your return are an important part of your financial plan. Even if your planning is a little thin, take the time to file. This is especially true as you get older and your tax return becomes more complicated. Getting into the habit now will be useful and, at the risk of sounding like your mother, filing a tax return is part of growing up. And remember, if you expect a tax refund, it is your money and the government is not paying interest on it.
Calculating your benefits
Even if you have little to no income, you can qualify for benefits like the quarterly GST/HST benefit or the Canada Child Tax Benefit. These payments are calculated based on the current year's tax return, so if you don't file the benefits will stop coming. There are also provincial credits to consider. A number of provinces have a Sales Tax Credit but -- again -- you have to file to get it.
And there are no-cost filing options available. The Canada Revenue Agency has volunteer clinics across Canada, there are free software programs available and the forms are online. So there should no reason not to file.
RRSP contribution room
Unlike the Tax Free Savings Account, you do not automatically receive Registered Retirement Savings Plan (RRSP) contribution room every year. The amount you are allowed to contribute depends on your earned income for the year. So every time you file a return and report your income, you are working to build your RRSP contribution room. And if you cannot use your RRSP limit in a year, the unused portion is carried forward to be used in future years when you are earning more money.
If you think retirement is too far into the future to think about, remember that you can borrow up to $25,000 from your RRSP for the down payment on your first home. This means acting on your retirement can also help you right now. The money borrowed under the Home Buyers Plan is interest-free and you have 15 years to pay it back.
And if you buy a house, your financial institution will ask for a copy of your Notice of Assessment as a proof of income. Unfortunately, I have had to help several clients file multiple years of tax returns within a very specific timeframe so they can get a mortgage approval. Your Notice of Assessment makes it much easier to prove your income.
How do I catch up?
You probably know someone who is at least two years behind on filing their tax returns. It is more common than you think and it is not always the disorganized, procrastinator-types that fall behind. I know someone who works in the banking industry who only files every three years but, again, that's not a recommended strategy.
If you find yourself three, five or 10 years behind, you can catch up. If you are missing T4s or other income slips, you can call the CRA at 1-800-959-8281 or sign up for My Account to get copies of your slips. Any slip starting with a T has to be registered with the CRA, so if you have lost all your T4s do not despair.
Once you have all your paperwork together, I recommend starting with the oldest year first and working your way forward. You do not need to complete all your late returns at once; mail each year's paperwork as you complete it. It will take the CRA some time to process your returns, so expect six to eight weeks of processing time. You can find old tax packages on the CRA's website.
You can also use older versions of tax software to prepare your return, but you will not be able to use NETFILE. You will have to print out a copy of your return and mail it in with copies of your slips and receipts. You can only file current-year tax returns electronically.
If you qualified for the GST/HST benefit in your unfiled years, the benefits will be paid retroactively, but be patient. It will take time to receive the payment.
Better to do it yourself
Filing multiple years of returns can feel like a daunting task, and it is tempting to put it off. But it is better to do it on your own than be compelled to file. The CRA can request that you catch up with your tax filing and give you a specific deadline to complete your missing returns. It is usually 30 days. Or the CRA can estimate your return based on your last tax filing.
No matter how much you do not want to file your return, getting caught up on your own terms is better than having a CRA deadline looming over your head.
Some people don't see the point of filing, some simply procrastinate and others have anxiety around taxes, but I encourage you to file and -- if necessary -- to seek help in doing so. It is central to your financial planning and can deliver in-pocket advantages in terms of credits and benefits. The tax deadline is April 30, and the earlier you start working on the process the easier it is.
