The 2016 tax-filing deadline may seem far off, but filing an annual income tax return is a task your clients should be mulling over during the entire year to ensure they file on time and don’t fall into the ranks of “chronically late filers.”
“People should think about income taxes and their implications throughout the year, not just in the last two weeks of April,” says Ann Patterson, an independent chartered professional accountant in Toronto.
Taxpayers who are employees generally pay income taxes when they get paid, but still have to file a tax return and any outstanding taxes by April 30. Most self-employed individuals pay income taxes, including HST/GST, on a quarterly basis. Their deadline for filing their tax returns is June 15, but all taxes owing still have to be paid by April 30 to avoid penalties.
The latest statistics show that about 12.5% of the 27.7 million Canadian taxpayers filed late for the 2014 taxation year, including those who received refunds. Although there are as many excuses as there are late filers, financial advisors may be able to nudge their clients into compliance by informing them about the following:
– penalties, in the form of compounded daily interest, can be assessed for any balance owing for the previous taxation year.
These costs can multiply with late filing. For example, if your client didn’t file a return for 2015 on time and owes taxes, there’s a 5% penalty on the 2015 balance owing, plus 1% of the balance for each full month the return is late to a maximum of 12 months.
Chronic late filers can get hit even harder. If charged a late-filing penalty for the 2012, 2013 or 2014 tax returns, the Canada Revenue Agency (CRA) may assess a penalty of 10% of the 2015 balance owing – plus an additional 2% of the 2015 balance owing for each full month the return is late to a maximum of 20 months.
Even if clients can’t pay their full balance owing before the filing date, they can avoid the late-filing penalties by filing on time.
– benefit payments. If clients wait to file their return until after April 30, certain tax credits, such as the GST/HST and any related provincial credits and even old-age security benefit payments, may be held up.
Child tax benefit payments, which can only be claimed by the lower-income spouse, can be delayed as well if both spouses don’t file on time.
– get organized. Clients should keep all tax-related receipts in one place and remember where they’re kept. These include slips such as T3s, T4s and T5s. The CRA receives a copy of these slips and could amend a tax return – either reducing a refund or sending an invoice for increased taxes – if these forms are not included in clients’ annual filing, says Patterson.
On the other hand, the CRA doesn’t get a copy of receipts for items such as charitable donations, medical receipts and receipts for licences and dues. Thus, taxpayers are responsible for keeping these together, she says: “It’s only if they can produce these receipts that they will be able to claim the appropriate deductions.”
– keep accounts up to date. If clients make sure their invoicing and sales are updated, gathering the information they need to file their returns is easier come tax time.
– get the right software. One of the best ways for clients to get organized is to purchase the software best suited to their needs, says Patterson. Start with an Excel spreadsheet and move to software to file taxes online. (See story on page B18.)
– let people know if you have moved. If your clients receive receipts from charitable and professional organizations by Canada Post, make sure they inform those organizations if they have moved.
– overpayments. Snowbird clients who return to Canada just before the end of April should ask their accountants to estimate what taxes they owe based on previous years. That amount can be topped up before the deadline to compensate for any potential shortfall.
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