Q: I run a family farm and have had some financial trouble of late. I haven’t filed my taxes for 2006 and 2007, and now the 2008 taxes are due at the end of April. If I file now, am I in trouble?
A: Unfortunately, to some extent you already are. It is, indeed, tax season. The law provides that individual’s tax returns are due to be filed with the federal government no later than April 30 every year.
The deadline may be extended to June 15 for self-employed people. If you do not file on time, the law provides for penalties and interest.
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Penalties are just that – an amount assessed against you for not filing your returns on time. If you are late filing a tax return for a single year, the penalty is five percent of the amount owing for taxes, plus one percent of that amount owing for each full month that your return is late.
The monthly charge has a maximum of 12 months. However, the penalty increases if you had a late filing in any of the last three tax years. That penalty is 10 percent of the current balance owing, plus two percent of that amount for each full month that your return is late, to a maximum of 20 months.
In your case, you have three returns due. The penalty on your 2006 return will be five percent of the amount owed to the government, plus one percent per month for 12 months.
On your 2007 and 2008 returns the penalty will be an extra 10 percent of the amount owed plus two percent per month for up to 20 months for each return.
You also have to consider interest.
No matter when your tax return is filed, if you owe money to the government you will have to pay interest dating back to May 1 of the year the return was due. Interest rates vary from time to time, and are prescribed by federal regulations. You can find out what these rates are at www.cra-arc.gc.ca/tx/fq/ntrst_rts/menu-eng.html or from your local tax office.
If you find yourself in this position and think you owe money, file your return. You will receive notice of how it was assessed.
If you think there is a good reason for filing late, or otherwise wish to tell the government your story and why you don’t think you should pay penalties and interest, you may apply for taxpayer’s relief. Sometimes it is granted, and all or part of the interest or penalties are waived. The government does not reduce the actual amount of tax you have to pay.
In the past, Canada Revenue Agency has looked at several types of events that have led to relief against penalties and interest.
If you or a close family member were seriously ill, or there was a death in your immediate family, that may account for the late filing and you may receive relief.
Disasters you couldn’t avoid may also be factors, such as a post office strike or a flood or fire.
As well, you say you are in financial hardship. You can make a request for relief or a fairness request, explaining your exact circumstances, and you may get all or some of the interest and penalty waived.
All of this assumes you owe money on your return. If you don’t owe anything, or are entitled to a refund, then these penalties and interest provisions are of less concern to you. However, even if you don’t owe anything, you are legally obligated to file a tax return each year to disclose the details of your income to the government. Failure or refusal to do so can result in criminal charges.
As always, it is important to get good professional accounting and legal advice. You need to know your rights and liabilities and deal with them as best you can.
Rick Danyliuk is a practising lawyer in Saskatoon with McDougall Gauley LLP. He also has experience in teaching and writing about legal issues. His columns are intended as general advice only. He can be reached at thelaw@producer.com.
