Think your tax bill was steep? Willie Nelson is almost as famous for his previous $16.7 million tax debt as he is for his music. Here are three rules for staying on the right side of the tax man.
File your tax return by the due date
The most important thing you can do, is file your tax return by the due date, which for most of us is April 30th and for those who are self-employed, June 15th. Late filed tax returns are, at a minimum, charged a penalty equal to 5% of the taxes owing plus 1% of the balance owing for each full month the return is late, to a maximum of 12 months. This means if you have a tax bill owing of $10,000 and you file your return on May 1st, you will immediately have a $500 penalty. In addition, the CRA charges interest at the prescribed rate, currently 6%, on the balance of taxes and penalties owing. The amount owing can add up quickly. So if you missed the deadline this year, contact your accountant and file your return as soon as possible.
Watch out for changes in your life circumstances
Did something change in your life circumstances in the year? If you changed your job, moved to another province, received a retiring allowance from your company, started renting out your house on AirBnB, got married or divorced or sold your house, then the most important thing you can do is speak to your accountant right away to make sure you understand the impact of the changes so you can plan ahead. This will help you avoid unpleasant surprise come April 30th.
For example, if you moved during the year to a new province, your taxes are actually calculated based on your residence as at December 31st. That is, you pay tax as though you lived in your new province of residence for the full year. This may work in your favour if you end up moving to a province with lower taxes or conversely, against you if you move to a province with higher taxation. The problem you are facing is that your employer will have withheld taxes based on your province of residence as at that date.
Don’t avoid notices from the CRA
Lastly, if you have avoided filing your tax return, remember that if the CRA haven’t received a return from you for a number of years, they will go ahead and send you their own estimate of the taxes owing. And as you guessed, when the CRA make up an estimate of your income and taxes owing their calculations tend to include all the income but none of the deductions!
For more information go to the: CRA Website