It Pays To File Your Tax Return and Officials Can Be Reasonable Even If You’re ‘Late’ – by Malcolm Morrison


TORONTO (CP) - As the clock ticks closer to this year's income tax filing deadline of May 1, there may be some taxpayers who just can't be bothered to file a return on time - and others who think they can pull a fast one by simply ignoring the Canada Revenue Agency.

But the penalties for tax evasion can be severe. The good news is that CRA will be reasonable with those who eventually see the light and file a return.

If you owe tax money to the government, there is nothing to be gained by putting off paying it, since penalties and interest charges start immediately.

You have to cough up what you owe and the penalty for late filing is five per cent of your balance owing for 2005, plus one per cent of the balance owing for each month until your return is filed, up to a maximum of 12 months.

"Anyone who does not file a personal or corporate income tax return may be liable on a summary conviction to a fine of $1,000 to $25,000 and imprisonment for up to 12 months for each count," points out CRA spokeswoman Jacqueline Couture.

"And that would be in addition to any tax and interest they owed, as well as any civil penalties that may be affected by CRA."

There are also late filing penalties.

"The penalty for repeatedly failing to file is 10 per cent of your tax balance owing, plus two per cent of the balance owing for each month until the return is filed - or up to a maximum of 20 months," says James Rhodes, managing partner of Rhodes Law Office in Toronto.

Even if you don't owe money but are owed a refund, the CRA won't recognize that until you file your return - in other words, don't expect CRA to pay you interest on your money.

The federal agency pays compound daily interest on your tax refund for 2005.

Its website says the calculation "will start on whichever of the following three dates is latest: May 31, 2006, the 31st day after you file your return, or the day after you overpaid your taxes."

Also, said Couture, "you may want to apply for a GST or HST (harmonized sales tax) credit - and you're eligible for it if you turn 19 before April 30." And "if you or your spouse want to continue receiving the child tax benefit payment, you have to file on a yearly basis."

You also can't carry forward any unused portion of your RRSP contribution if you don't file.

Now, perhaps you've tried to pull a fast one with CRA - or maybe you were just careless with your arithmetic one year - and this is costing you sleep. You'll be happy to know that the agency will help ease you back into the fold of honest and properly calculating taxpayers.

The most prominent vehicle for rehabilitating recalcitrant taxpayers is CRA's voluntary disclosure program.

"If you have not filed previously or if you had sent 'incorrect information,' shall we say, you can voluntarily file or you can correct the return where you originally stated what was incorrect under what is called a voluntary disclosure program," said Couture.

However, experts say it's very important to get your disclosure just right.

"I call it a 'miracle program' because although you've done wrong in the past it lets you make amends with the government, where if your disclosure is accepted it gives you - right off the bat - an agreement that they will not charge you criminally or assess you with civil penalties for your past actions," said Rhodes.

However, these appeals are handled by a special group at CRA and it's vital that you address your bid properly.

"When it comes to the CRA, it is always very important to present the right information to the right people on the right forms," said Rhodes.

"If you write in and request acceptance under the program, you can get the magic treatment. If you don't, you can get the worst treatment."

He suggested that's because from time to time the CRA might want to make an example of an errant taxpayer.

"Just say you wrote to the CRA said, 'Dear CRA, I'm sorry I messed up and I lied on my return, here's my true information.' I think they could prosecute you criminally, and I think they would charge you civil penalties."

Although you can approach CRA yourself or through your accountant, Rhodes thinks it a good idea to get a tax lawyer onside.

"One of the main benefits of using a tax lawyer is that you are protected by solicitor-client privilege until you are ready to reveal yourself and your errors to CRA," he pointed out.

"This is something you don't get in a client-accountant relationship."

A couple of other things:

Voluntary disclosure is just that. If the CRA determines that the disclosure was not voluntary - that is, you know you are about to be audited - you will not be accepted under the program.

Also, as Rhodes said, "if you come clean about a million-dollar issue but leave out the half-million bucks you received for something else, they will disqualify you from the program and you will face their full wrath."

"If you come clean, you must come completely clean."

© The Canadian Press, 2006