If you’re thinking about not filing your taxes because you’re afraid you owe the government money, this is not going to solve your problem. Instead, it’s likely to create new problems, and more tax debt. Even if you can’t afford to pay your tax debt, filing on time can help you avoid late penalties and interest payments and prevent a delay to government benefits.
What Happens if You Don’t File Your Taxes on Time?
For most Canadians, the tax deadline is April 30. If you’re self-employed, June 15th is the tax filing deadline, but you have to pay your taxes by April 30th.
If you don’t file your taxes on time, you face several consequences, including:
Late filing penalty
If your tax return is not filed on time and you have a balance owing, this can result in a late filing penalty. The penalty is 5% of your balance owing, plus an additional 1% for each month you file after the due date up to a maximum of 12 months.
Filing late more than once within three years can increase the penalty to 10% on your balance owing and 2% per month for a maximum of 20 months. For those who owe a lot of money, this can turn into a significant amount of tax debt.
Interest payments
Missing the deadline will also result in interest payments, which compound daily starting May 1, 2024. How much interest you pay can change every three months based on prescribed rates from the Canada Revenue Agency (CRA).
Tax-installment interest
If you pay tax installments and miss an installment deadline, the CRA may charge installment interest, which is compounded daily at the prescribed interest rate.
Delayed benefits
Not filing your tax return on time can result in delayed government benefits. For instance, if you have children and rely on the monthly Canada Child Benefit (CCB), failing to file on time could result in missed CCB payments. Eventually, the CRA may begin to apply any benefits or tax refunds you earn to your balance owed.
The CRA also has the ability to take legal action against you if you fail to set up a payment arrangement. Before taking action, the CRA will typically make three attempts to notify you by phone and send one written letter. Some of the legal actions taken by the CRA to get taxes owed include:
- Wage garnishment. The CRA can contact your employer or someone who owes you money to send it to the CRA. The government can also redirect money owed to you by the federal government such as funds from your Canada Pension Plan (CPP) or Old Age Security (OAS).
- Register a lien on your home. When the CRA registers a lien on your home, it means they establish their priority as a creditor when your home is sold. In other words, they establish their spot at the front of the line to claim funds for the sale of your home before you get any of the money.
- Investment seizure. It’s also possible for the CRA to sell your assets and property to repay your tax debt.
What to Do if You Can’t Afford To Pay Your Tax Debts?
If you know you can’t afford to pay your tax debt, you have options.
Contact the CRA
The CRA is open to helping you if you can’t afford to pay your taxes. If you can’t afford to pay in the short term, the CRA allows you to schedule a series of payments through your online CRA account using a pre-authorized debit (PAD) agreement.
If you don’t know how to use your online account, you can call the CRA to set something up. The CRA provides a personal income and expense tool on their website to help you determine what you can afford to pay.
Tax-payer relief
In certain situations the CRA will waive late penalty fees or interest payments. If an event outside of your control prevents you from paying your taxes on time, you can apply to the CRA to have payments cancelled or waived. Some examples of situations that might qualify include:
- Natural disasters such as fire or flood
- Serious illness or accident
- Death in the immediate family
- Financial hardship, such as job loss
- Mistake by the CRA
To submit your request, you can visit the Government of Canada website.
Talk to a Licensed Insolvency Trustee
If the CRA is garnishing your wages due to unpaid taxes, and you’re not sure what to do. It’s time to speak to a Licensed Insolvency Trustee (LIT). LITs are federally regulated professionals who can assist you in coming up with a plan to get out of debt. Trying to navigate tax debt and wage garnishment or asset seizures can feel intimidating and isolating but, you don’t have to do it alone. There are many Canadians who feel the pressures of tax debt and cannot find relief. A LIT can help you make sense of what is going on and explain your options for how to move forward.
Find Tax Debt Relief
Not paying your taxes is a serious offense. The CRA has a lot of power and will take serious measures to get their money. Even if you can’t afford to pay your tax debt, you should still try to file your tax return on time. If you can’t pay, call the CRA as soon as possible to try and figure out an arrangement. The CRA is willing to work with you. Trying to ignore the problem by not filing your taxes, won’t make it go away.
If you’re at a point where the CRA has taken legal action against you due to overdue taxes, reach out to a LIT at Allan Marshall & Associates. You do not have to deal with this alone, we are here to help. Give us a call at 1-888-371-8900 or complete our online contact form.
