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Some people avoid filing their annual income tax return. Regardless of their reasons, they are exposing themselves to penalties or even fines from the Department of Justice. Here are the reasons why it is important to complete your income tax return and repay your tax liability, if you have any.

Two reasons to file your income tax return

The majority of adults have an obligation to file the income tax return each year with the federal and provincial (if applicable) governments. Here are two other good reasons to file your income tax return:

  • Avoid late filing penalties

    The Canada Revenue Agency (CRA) and Revenu Québec can impose a penalty on those who do not file their income tax return before the deadline. A minimum fee of 5% of the outstanding balance is applied beginning on the first day after the deadline. Also, an additional fee of 1% is added each month until the income tax return is filed.
    A repeated failure to report income penalty can apply to those who have not filed income tax returns for multiple years. Worse, the Departments of Justice can impose fines for failure to file an income tax return. These fines are not subject to liberation. Unlike other penalties and tax liability, they cannot be included in bankruptcy or a consumer proposals. Therefore, a fine must be paid, regardless of your budget or situation.
    For these reasons, it is important to complete this annual obligation and avoid additional debt.

  • Obtain allowances

    By failing to file their tax return, a person could be depriving themselves of supplementary revenue for which they are normally eligible. Depending on their personal circumstance, they may be eligible for a family allowance, GST credits, the Trillium Benefit (Ontario), the solidarity tax credit (Quebec), or other types of allowances.

Why do some people fail to file their income tax return?

Even though it is important to file taxes, we estimate that about 10% of taxpayers do not fulfil this obligation. The main reasons for this are costs, fear of debt, and lack of time.

  • Filing costs

    Some taxpayers fail to file their income tax return because they do not have the means. Often, they do not know how to prepare their taxes themselves and they do not have the funds to employ the services of a professional. Fortunately, there are income tax preparation clinics that offer their services free of charge. Users must only satisfy certain criteria to benefit from this aid.

  • Fear of having to pay taxes

    Having tax liability to repay can be stressful when you don’t have enough money to pay it. Therefore, some taxpayers do not file their income tax returns because they believe they need money. However, debts won’t go away by ignoring the problem. In fact, this behaviour exposes them to additional penalties, which will only increase the debt they have to pay.

  • Forgetting or running out of time

    Sometimes taxpayers completely forget to file their income tax return before April 30. Others are simply overwhelmed and run out of time. In this situation, it is important to file your tax return as soon as possible, even if the deadline has passed. This will reduce additional penalties, and you will avoid accumulating debt.

What should you do if you have tax liability?

Once they file their income tax return, some taxpayers find themselves with tax liability to repay. Even if they do not have the means to pay it, it is better to act quickly. Otherwise, this liability may cause more serious financial problems, such as wage garnishment, registering a lien (Ontario), or a legal mortgage (Quebec). To avoid these problems, you can meet with a professional for advice and to decide on a solution.

Tax liability solutions

  1. Payment agreement

    Contact the CRA or Revenu Québec directly to make an arrangement. These institutions want above all to recover the sums they are owed. They are therefore amenable to making agreements, especially with people who demonstrate a willingness to pay their tax liability.
    For example, they can alleviate penalties and interest under certain circumstances or they can allow payments to be staggered.

  2. Consumer proposal

    The consumer proposal is useful for those who have a large amount of tax liability and who are threatened with wage garnishment, because this solution protects taxpayers against this recourse in particular. This solution also enables taxpayers to reduce their total liability and alleviate the weight of this burden.

  3. Bankruptcy

    This last-resort solution may be considered when there are no other options. At the end of this process (generally nine months in the case of a first bankruptcy), taxpayers are liberated from their tax liability and other personal debts.

A controversial solution

In general, it is better to avoid repaying your tax liability with an advance on a credit card or a personal loan. Interest rates on these products are higher than those charged by the CRA and Revenu Québec, so it is preferable to negotiate a payment agreement with government bodies.

Cooperation is more advantageous

Even if you are in a difficult position, it is better to cooperate with CRA and Revenu Québec agents. They are normally more inclined to make an agreement and propose solutions to taxpayers who cooperate with them.

One last piece of advice

Regardless of your situation or reasons, it is advised that you submit your income tax return before the deadline to avoid additional penalties. Finding the means to repay the balance owed is part of a different step. This should not compromise the filing of your income tax return.

Community organizations, tax service companies and licensed insolvency trustees can help taxpayers with certain aspects of income tax returns and liability repayment.

If you have questions about the information presented here or if you would like to receive personalized advice, contact a Ginsberg Gingras professional.

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