To forget is human but if you miss reporting income twice in four years, the CRA tacks on a 20 per cent penalty
Forgetting is an easy thing to do. I write lists and reminders to make sure I don't forget anything important but it doesn't always work. And though we all forget from time to time, your taxes are one area when forgetfulness might cost you more than you think.
When you file your tax return and sign the last page, you are declaring all of your income for the year. Canada has a self-assessment system so the Canada Revenue Agency relies on the taxpayer to truthfully declare their income. So if the CRA finds out you have income that you didn't report on your return, you will be reassessed.
Most income is reported on T slips which are usually sent to you from sources like your employers or financial institutions. Those T slips are also sent to the CRA. All of the T slips include your Social Insurance Number and the CRA uses it to make sure that all of the slips they have on file are claimed on your tax return.
So if you worked two jobs or have multiple investments that involve T3s and T5s, you need to make sure you get all of the slips together before you file your return. And if you receive an income slip after you file, make sure you file an adjustment so it can be included on your current return. You must declare all T slips in the year you receive them -- you cannot wait until next year if you forgot one.
The first time you miss a T slip, the CRA will reassess your return and send you a bill for the outstanding tax plus interest as of April 30. You may think it is over once you pay the bill, however, you now need to be extra careful when it comes to claiming all your income.
Failure to report income twice within a four-year period will draw a significant penalty. It is calculated as 10 per cent of the amount you failed to report. Provincial penalties will also apply so the total penalty is 20 per cent. It sounds big and it can be.
One recent case is a taxpayer who forgot a T4 with about $36,000 in income. Because he had missed claiming income within the four-year time frame, the CRA assessed him a $7,200 penalty -- 20 per cent of the income he failed to report. Once they included the missing T4 in his tax calculations, he only owed $123 in additional taxes. Even though the T4 didn't make a huge difference to his tax payable, the 20 per cent penalty is unforgiving when you have failed to report income in the past.
And there is no mercy rule. The CRA will refuse to waive the penalty under the taxpayer relief provisions unless you can show that your failure to report the income was due to circumstances beyond your control. And the courts have generally refused to intervene unless you can establish that you exercised due diligence when you filed your tax return.
If you are unsure about your T slips, the CRA is working to have most of them posted on their My Account service so it may be a good idea to sign up to get access. And if you are missing a slip, it is worth hunting it down to include on your return.
No matter how you file your return, make sure you have all your income slips and if you missed one, don't wait for the CRA to find out. Forgetting an income slip is easy enough to do but if you have done it once, you need to be extra careful for the next four years to avoid any major penalties. Even a small amount of missing income can add up when the penalty is 20 per cent.
MORE ON HUFFPOST:
