With Canada’s tax deadline is quickly approaching, many are unaware of costly tax penalties and fines that can lead to further debt and even bankruptcy by not filing.
Dean Prentice is a trustee and bankruptcy partner with MNP Limited in Williams Lake.
He says although tax debt can come from various reasons, they see a lot of people not paying tax installments on their self-employed income and then exacerbating the problem by not filing tax returns on time.
“Then they don’t have enough money, so they wind up not filing and not paying their taxes, hoping they’ll be able to have a better year the next year. Then often it becomes a self fulfilling prophecy where the second year they don’t have the funds and now the penalties and interests are even higher and they get scared to file their taxes at all.”
Failure to report income twice or more over a four-year period may result in an extra 20 per cent tacked onto the total amount of income that was earned and not reported in the most recent tax year.
Prentice says although he often sees people in his office who feel completely helpless because they haven’t filed in years, there is good news for them through the Voluntary Disclosure Program.
“If they come forward and inform the agency that they’re filing their taxes or they’ve made an in-correction, or didn’t file their taxes properly before, CRA will waive the penalties on the improper filing or late penalty. You may have to pay some interest, but you can save yourself a lot of money in just coming forward and being up front.”
“People who are not able to pay can file a proposal, stopping all interest penalties and garnishments, to negotiate a binding compromise or settlement with the CRA. If it is not possible to negotiate a settlement, filling bankruptcy is another option.”
The Canada Revenue Agency (CRA) announced last week that they have seen a 125 per cent increase in tax debts they view as “having little potential for recovery”.
Because April 30th falls on a Saturday the deadline falls on the next business day, Monday May 2nd.