If you don’t file your taxes in Canada, you may face several consequences, including financial penalties, legal action, and a reduction in government benefits.
The CRA imposes these consequences to ensure Canadians file (and pay) their taxes on time.
Below, I’ll outline some of the consequences of not filing or paying your taxes and break down each step to file your taxes in Canada.
When it comes to taxes, the Canadian government does not play around. Although some taxpayers try to skirt the rules or hope that their non-filing status won’t be noticed, the reality is that it will eventually catch up to them.
After all, the government is funded by our tax dollars. The CRA quite literally pays full-time employees to research and identify individuals who aren’t filing their taxes, are lying on their tax returns (tax evasion), or haven’t paid the taxes they owe.
That being said, there can be significant penalties for not filing your taxes in Canada, including:
- Financial penalties: If you owe taxes and fail to file a tax return by the deadline, you could face financial penalties. The late-filing penalty is 5% of your owed tax balance plus an additional 1% fee for every month your return is late, up to a maximum of 12 months (after which further action may be taken).
- Interest charges: If you owe taxes and fail to file your tax return, you will be charged interest on the amount owing. The interest rate is currently set at 5% for personal tax debts.
- Reduction of government benefits: If you receive government benefits, such as the Canada Child Benefit or the GST/HST credit, failing to file your taxes could result in a reduction or loss of these benefits.
- Legal action: If you repeatedly fail to file your taxes, the CRA may eventually take legal action against you. This could include wage garnishment, seizure of assets, or court proceedings.
While there is no official time limit for filing your income tax returns in Canada, delaying the filing of your tax returns for several years at a time can lead to severe consequences, such as those mentioned above.
The CRA probably won’t come after you for missing a single year. However, your non-filing will be noted, and any late-filing fees, interest, and other penalties can be taken out of future tax returns.
If you have missed filing a tax return, you should submit it as soon as possible (even if it’s several years overdue).
This can help decrease any penalties and interest charges you may owe and help you avoid legal action initiated by the CRA.
Some people mistakenly assume that they don’t need to file their taxes because they didn’t earn income or believe that they earned so little that they don’t need to file their tax returns.
Unfortunately, this is not how the CRA works. Every Canadian, regardless of how much (or little) they earned, is responsible for filing income tax returns. If you’re of majority age, you must file your tax returns each year.
Minors who have earned income through part-time work, a side hustle, or a summer job must also file a tax return with the CRA.
In most cases, you won’t be carted off to jail for failing to file (or even pay) your taxes for a single year. However, if you repeatedly fail to file your taxes, the CRA may escalate matters.
The CRA does have the authority to pursue legal action against individuals who fail to file their tax returns or who knowingly provide false information on their tax returns.
In most cases, though, the CRA will try to resolve the issue through penalties, interest charges, and other administrative measures. However, if a taxpayer repeatedly fails to file their tax returns, refuses to pay taxes owed, or is involved in tax evasion or fraud, the CRA may resort to criminal prosecution.
Individuals convicted of tax evasion may face fines, penalties, and even imprisonment.
The maximum penalty for tax evasion in Canada is five years in jail and a fine of up to $50,000. In severe cases, the penalty may be as high as 200% of the taxes owed, and the individual may face additional charges for fraud or other criminal offences.
How To File Your Income Tax Returns: Step-by-Step
Hopefully, you’re beginning to understand the importance of filing your tax returns on time. Now that you’ve had a chance to overview some of the penalties that the CRA can impose, you can see that it’s in your best interest to file your taxes promptly.
The good news is that filing your taxes in Canada is relatively easy and, in many cases – free.
Thankfully, filing your income tax returns in Canada is pretty easy and straightforward. Here are the steps, which I’ll go into more detail below:
- Get your paperwork ready
- Choose your filing method
- Create a CRA My Account
- Complete your income tax returns
- Review your tax forms for errors
- File your taxes with the CRA
- Pay your taxes
Before filing your tax returns, you must gather all of your tax and income documents, such as your:
- Tax slips
- Record of RRSP contributions
- Receipts from charitable donations
- … any other tax-related documents
Next, you’ll need to decide how you want to file. If you don’t know much about tax laws and deductions or have more complex tax needs, I suggest working with a registered tax preparer or CPA. These individuals are trained in Canadian tax laws and will ensure your taxes are correctly filed. They’ll also be able to help you identify tax deductions that you may be eligible for.
However, if you’re a bit tech-savvy and have a simple tax situation, the easiest solution is to file your taxes online using one of the CRA’s NETFILE-certified tax filing software programs. Many are free, pay-what-you-want, or charge a low flat fee to help you file your taxes.
From my experience, Wealthsimple Tax is one of the most well-rounded tax-filing programs and operates on a pay-what-you-want model, making it essentially free.
If you haven’t done so already, you’ll need to create a CRA My Account. This online account stores all of your important taxpayer information, including:
- Your full name
- Your Social Insurance Number (SIN)
- Your mailing address
- Your bank account routing information (for your direct deposit)
If you use an online tax-filing program, the software should be able to automatically import details from your CRA My Account to expedite the tax-filing process and ensure that there aren’t any clerical errors on your tax returns before they’re submitted.
Once you’ve decided on your method of filing and created your CRA My Account, it’s time to start filing your income tax returns.
Online programs like Wealthsimple Tax, TurboTax, or H&R Block, can be helpful, as they’ll guide you through the process of filing your tax returns step-by-step. You’ll receive helpful prompts, video tutorials, and tax definitions to help you sort through the legal jargon.
If you’re working with an accountant, then they’ll guide you through the process of filing your taxes, asking you questions and filling out your tax forms as they go.
Before you submit your completed tax return, you’ll want to double-check it for any mistakes. Even a slight spelling error could get your taxes sent back and cause delays in your tax refund.
Here’s another area where tax software programs shine. Many tax filing programs have a built-in scanner that can rapidly scan your paperwork to check for common errors, spelling mistakes, or miswritten numbers. This allows you to fix the issues before you submit the tax return and get it denied by the CRA.
Once you’ve verified that your tax return is error-free, it’s time to file it with the CRA. If you’re using tax-filing software, then this will be automatically done for you. If you’re filing the old-fashioned way or working with an accountant, then the tax return will need to be mailed directly to the CRA.
Once your tax return is processed by the CRA, you’ll receive a letter of assessment outlining your next step. This letter will notify you if you’re eligible for a tax refund, explaining how much you can expect and when you can receive it.
If you owe taxes, this letter will also detail how much you owe, how to pay the CRA, and when it needs to be paid.
The deadline to file your taxes in Canada is typically April 30th. Since April 30th falls on a Sunday this year, the tax-filing deadline has been moved up one day to May 1st, 2023.
If you, your spouse, or your common-law partner are self-employed, then the tax-filing deadline is June 15th, 2023.
If you file your taxes online, the CRA tries to deposit your eligible tax refund within two weeks. If you’re filing by mail, then you’ll have to wait up to eight weeks, as paper tax returns require more time to process.
Although it may be annoying, filing taxes is an inescapable part of life. Thankfully, there are plenty of free or low-cost software options to help you quickly file your tax returns. The penalties for not paying your taxes can be high, so you should do your best to file on time yearly.
Are you ready to file your taxes? Keep on reading to see my review of Wealthsimple Tax – one of Canada’s top-rated tax-filing software programs!