One way, or another, they’ll get you

Avoiding CRA only worsens interest, penalties owed

Q: I have had some financial problems because of a failed business venture several years ago. My income taxes filings are more than four years past due. I was told that if I claim amnesty, Revenue Canada would forego any income taxes owing for these years. How do I go about doing this?

— Danny, Toronto

A: There are procedures for volunteer disclosure. However, getting Canada Revenue Agency (CRA) to forgive your income-tax obligation may be an impossible task aside from bankruptcy. Failing to file an annual income-tax return only defers the inevitable. At some point, you must contact Revenue Canada. Unfortunately, the longer you delay filing your income-tax return, the greater your obligation will increase. Not unlike taking care of your teeth, ignoring a cavity only makes it get worse. As years pass, interest and penalties continue to compound.

Non-filers may escape the CRA’s radar for several years, but not indefinitely. Ordinarily, if you fail to file your tax return and CRA has sent numerous correspondences, they will arbitrarily assess your past due returns. Typically, the assessments will not be in your favour. Then, CRA will become more aggressive and receive default judgment against the taxpayer. Unlike other creditors or a credit collection agency, which may pester you with telephone calls, CRA can move to garnish wages, register liens on houses, and seize bank accounts to name a few measures.

Individuals are required to file a tax return under the following conditions:

You have taxes owing in the year.

You are self-employed with income greater than $3,500.

You have taxable capital gains or disposed of capital property (such as real estate, stocks).

You have to repay Employment Insurance Benefits or old age security.

You have to repay your RRSP under the Home Buyers Plan.

You are entitled to receive a child tax benefit.

You receive a request by CRA to file a return.

However, it may be advantageous to file a return in order to:

Claim GST or provincial tax credits.

Carry forward tuition or education amounts, losses (various) for future use.

File for an income-tax refund (generally, most employed individuals have refunds).

Fulfil a mortgagor’s or credit request for prior year’s tax assessment.

Build RRSP room.

Under CRA’s Voluntary Disclosure Program, individuals may voluntarily come forward to fulfil their tax obligations. Individuals may request relief from the penalties and interest for late filing and depending on circumstances, such as a serious illness, CRA may waive the penalties. A plea of ignorance will not be sufficient for CRA to waive penalties and interest.

Although you can initiate a voluntary disclosure, it would be in a taxpayer’s best interest to obtain the service of an accountant or tax lawyer, particularly if the taxes and penalties amount to thousands of dollars.

Henry Choo Chong, CGA provides accounting and tax services to individuals and businesses in the GTA. He can be reached at: 416-590-1728, ext. 304. Any questions to Money Matters should be e-mailed to choochonghcga@yahoo.ca.