Steps to Follow If You Are A Non-Filer
If you are behind in filing your tax returns or if the Canada Revenue Agency has sent you a request, requirement, or a demand to file here are some of the steps you should take.
- Determine which years are outstanding. Determine if the unfiled returns are T1 personal returns, GST returns, Corporation T2 return, T1135 etc. Find all correspondence received from the Canada Revenue Agency. Now is the time to open all of those brown envelopes you have been ignoring.
- If the Canada Revenue Agency has called you or has sent you a request to file its time to make contact with them and let them know that you intend to get up to date. The CRA might have given you a deadline. It is possible to get an extension if required. If you continue to ignore the Canada revenue agency it is likely that they will files notional returns for you. These returns usually are not in your favor and deduction for dependents, RRSP, etc. are not included in the calculation. The CRA will estimate your income and allow limited or no expenses. The CRA can start collecting after 90 days from the date the notional returns are assessed. If you are unsure what is happening, we recommend you go online under the CRA myaccount and see what is happening with your account and view your mail.
- Once you know what returns are outstanding, you need to gather up all the information needed to file these returns. Our firm is able to go online and get all of your TSLIPS for up to 10 years. If you are self-employed or incorporated you will need to gather all of your bank statements. If you do not have them, they can be ordered from the bank. These records will be important because you will be required to produce a financial statement on your tax return.
- The next step is to get your returns prepared. This process may be very simple or it may be very complicated. We typically recommend you seek help if you are not absolutely certain what you are doing. Well, it is easy to find tax software for a current year it becomes much more challenging to find software that will do older tax years. It can become extremely costly to amend a tax return if it is prepared incorrectly.
- Once you get the returns prepared, then we need to determine how to submit them. If a non-filing officer is involved, we typically recommend contacting them directly and getting directions on how to submit the returns. If the CRA has not made any contact you should consider using the Voluntary Disclosure Program.
- If there is a balance owing and you are unable to pay in full, it is possible to make a payment arrangement with CRA. We can help you with that. If the amount owing is more than you could ever pay then other options may need to be considered see our Considering Bankruptcy page for more. If there were circumstance beyond your control that resulted in you being unable to file your returns on time then you might review your options under Taxpayer Relief.
Frequently Asked Questions when filing tax returns:
Should I do my own bookkeeping?
Most people think that bookkeeping is simply providing an excel spreadsheet of your income and expenses. In reality bookkeeping is the process of cataloging all transactions in a manner that allows for easy accounting practices, tax preparation, and audit protection. Most bookkeepers charge between $25 – $100 per hour. Most clients who do their own bookkeeping end up needing to redo part or all of the file with a professional bookkeeper. It usually ends up being a waste of their time. We recommend our clients work with a bookkeeper but first identify all of their transaction in their bank accounts.
What if I don’t have records?
If you don’t have access to your records or you were dealing in cash there are other methods that can be used to prepare your returns. We would with the Canada Revenue Agency to determine a fair way to prepare your returns if they can’t be done in a conventional manner.
Do I need to report cash?
YES! The Canada Revenue has multiple ways to determine if you have been earning cash on the side. They currently have access to records provided by cheque cashing services. Failing to report your cash transactions can turn an easily fixable situation into a criminal one.
Should I income split with my spouse?
Splitting your self-employment income through dividends or other schemes has been common accounting advice for years. While this is a method to marginally save you money on taxes, we typically recommend against it. The government has made it harder to do this and easier for it to be challenged in an audit. In addition, by income splitting with your spouse you may be opening up an avenue for the creditors of your business, including the Canada Revenue Agency, to peruse your spouse if you fail to pay them.
Do I have to wait for my spouse to file?
You do not need to wait for your spouse or co-law partner to file their return before you can file your own return. Make sure you report your correct marital status. If possible, it would be best if both of you could file returns, but if not, estimate your partner’s income so that the Canada Revenue Agency can applied the credits that you might be entitled to.
Should I file if I cannot pay?
You should always file your tax returns on time whether you can pay or not. A minimum late filing penalty of 5% plus 1% per month for 12 months on the outstanding balance will automatically be added if you do not file on time. It could be a lot higher if you are a repeat late filer. You could also be prosecuted for failure to file your tax returns. Not filing your tax return because you cannot pay is tax evasion.