Tax Tip Thursday

I would like to talk to people who are behind in their taxes.

Here is another reason to make sure you stay up to date.

I am always saying, to make sure you file your returns, on time, at a minimum, even if you do not pay, as it will at least save you the penalties! Now it appears that it could save you a whole lot more!

By filing on time, you are compliant with your tax filing obligations, the payment becomes a collection issue and you will pay interest until the account is paid in full. Still important – but filing is the most important if you owe money.

We had a client recently who was behind for many years.

They were self-employed and as such, you are responsible for paying both the employer and employee CPP contributions on your net income.

Self-employed Sole props are required to pay both the employee and employer portion.

The CRA had “notionally” assessed the taxpayer and set the income at $60k approximately. This was based on the previous year’s income levels.

Fast forward to now. We have prepared 5 years of returns.

We went and looked at the assessments to confirm everything went through ok and there was a significant difference (almost $5k in taxes).

After reviewing the reassessment, it indicated that the full CPP was still payable based on the $60k net income that they had used for the notional assessment ($5k).

There is a rule that you are not allowed to recoup CPP overpayments after 4 years. This generally applies to payments actually made, but apparently, it applies to a notional assessment as well.

So now in addition to late penalties and interest on the tax owing, they now owes an additional $5k CPP (for each of several years), PLUS penalties and interest on that amount as well!

2 big lessons here.

1. Make sure you file your returns on time!
2. Catch up on your late filings if you need too
3. Make sure you review your assessments against your tax return when they come in.

In this particular situation – the taxpayer may not have even noticed the increase given the number of years and the amounts that they owe.

Keeping your taxes up to date is the best way to protect yourself from overpayments!  Make An Appointment today!

Disclaimer:

This article provides information of a general nature only. It is only current at the posting date. It is not updated and it may no longer be current. It does not provide legal or tax advice nor can it or should it be relied upon. All tax situations are specific to each individual. If you have specific tax questions you should book an appointment for a 1 on 1 consultation.