Is it compulsory to file a tax return in Canada?
If you owe taxes, the Canada Revenue Agency expects you to file your income tax return by the deadline date of April 30th.
When you fail to meet this deadline, a late-filing penalty and interest is charged.
If you don’t owe taxes, it is advisable to file your tax return if you plan on getting a refund or want to be assessed for benefits such as the Canada Child Benefit or GST/HST Credit.
Filing your taxes late or not filing at all can cost you a lot of money.
Tax Filing Deadline
The deadline to file your individual tax return is April 30, 2021. If you or your spouse are self-employed, the deadline to file your taxes is June 15, 2021.
- April 30, 2021: Individual tax returns due
- June 15, 2021: Self-employed tax returns due
While sole proprietors get an extension until June 15th, all taxes outstanding must be paid by April 30th in order to avoid paying interest fees.
Penalties For Filing Your Taxes Late
The CRA does not take it lightly when you owe taxes.
Starting from day 1 after the deadline date (i.e. on May 1), a compounding daily interest is levied on the outstanding amount.
The interest rate charged by the CRA may change every 3 months and is currently 5% from January to March 2021.
You could file your taxes on time and still pay interest fees if you have an outstanding balance. Interest basically applies as long as you owe taxes.
How about filing your taxes late?
When you don’t meet the April 30th (individual return) or June 15th (self-employed return) deadline, a late-filing penalty applies.
The late-filing penalty is 5% of the income tax owning for the 2020 tax year, plus an additional 1% of the balance for every month your return is late (for up to 12 months).
For example, if you owe $5,000 and end up filing your return in November (seven months late), your tax balance increases by 12% (i.e. 5% base penalty + 7% interest for 7 months).
The late filing penalty on your $5,000 initial debt is now $600. It doesn’t stop there as interest is also charged on the penalty.
If you have made it an habit to file your taxes late, the late-filing penalty is more severe, and is up to double the standard rate.
How To File A Late Tax Return in Canada
You can file your late tax return through the normal avenues, including:
1. Online Tax Software: Use a CRA-certified tax software to complete your return and electronically transmit it to the CRA via NETFILE.
2. Accountant: You can hire an accountant to help you out or use a service like H&R Block that offers both online and in-person support.
3. Paper Filing: Tax-return form packages are available on the CRA website, including those for previous years.
CRA’s Voluntary Disclosures Program
If you have failed to declare income on your tax return or have made a false statement or omission, you may be able to get a penalty waiver if you voluntary tell the CRA.
Depending on your circumstances, a Voluntary Disclosures Program application could also spare you from prosecution if it is accepted. This program has two streams: Income tax and GST/HST.
You will still be required to pay the taxes owed, including full or partial interest.
TaxPayer Relief Provisions
If you are unable to pay your taxes or file on time due to ‘extraordinary circumstances’ outside of your control, you may qualify for interest or penalty waivers.
Examples of situations that may qualify include:
- Natural or man-made disasters
- Serious illness or accident
- Postal strike
- CRA errors or processing delays
- Extreme financial hardship
- Serious emotional or mental distress
Filing Tax Return Late When You Don’t Owe Taxes
If you don’t owe the CRA any money, there are no penalties for not filing or for filing a late return.
That said, you should still aim to file your return because CRA won’t send you a refund even if you qualify without a return.
Also, you could miss out on some government benefits such as the Canada Child Benefit and GST credit.
The tax filing deadline is on April 30th for most tax filers in Canada.
While the deadline was extended in 2020, there are no indications that the CRA will extend the same courtesy this year.
When you file your return using a certified tax software, you can receive your refunds in as little as 2 weeks.
Some great tax software options include:
Even if you are unable to pay your full tax balance, you can avoid the late filing penalty by sending your return on or before April 30.