Almost out of time to file return
Time is running out if you are among the millions of Canadians that still haven't filed your 2011 tax return yet. Filing statistics as of April 23 - a week before Monday's general filing deadline - show that the Canada Revenue Agency had processed 14.3 million tax returns. That's about 55% of the 25.7 million returns that were filed in 2009, the latest year for which statistics are available.
While April 30 is the filing deadline for most of us, self-employed individuals (and their spouses or partners) have until June 15 to file, but any balance owing is still due April 30, making this weekend critical to at least estimate your potential liability and get that payment in by Monday.
If you don't file your return on time, the penalties and arrears interest can add up quickly. Under the Income Tax Act, if you are even one day late, there is an automatic late filing penalty of 5% of the amount owing for 2011. There is an additional penalty of 1% of the outstanding balance for each full month that your return is late, to a maximum of 12 months.
Note, however, that if you were subject to a late-filing penalty for any of the previous three years (2008, 2009 or 2010), your 2011 penalty could more than double. In addition, non-deductible arrears interest is charged on top of the penalty, currently at the prescribed rate of 5% per year.
To date, the CRA has issued refunds of $14.8-billion, with the average refund coming in around $1,548. Of the 14 million returns assessed so far, two-thirds of them were in a refund position, while 21% were nil returns, with only 12% showing a balance owing.
Even if you think you won't have any penalties for late filing because you're expecting a refund, there are still a few good reasons to file on time. The most obvious is that the sooner you file, the sooner you get your money.
But a less obvious reason for timely filing is that the CRA may assess your return differently than you anticipate, or reassess you in the future, which could leave you unexpectedly with a balance owing. This will trigger not only the onerous late-filing penalties, but also interest that applies retroactively to the original due date of the return.
This can occur if you are missing a tax slip which perhaps got "lost in the mail." Since the CRA receives electronic copies of all tax-slip information, many a taxpayer has been reassessed by the CRA on account of an errant or misplaced T3 or T5 slip. Since no taxes are withheld on investment income, if the unreported income from the T-slip is significant, it may be enough to eliminate a modest tax refund and turn your return into one with a balance owing, which, if late filed, could cost you dearly.