Tax Tip Thursday

Managing Your Taxes

This week’s show and blog post is for those of you who might be behind on your taxes. Whether just one or two years or several, this applies to you!

I am always saying that you should stay up-to-date on your taxes. It’s simpler this way, and you’re not saving yourself any money by not paying the CRA. They will eventually come for you or you will go to them and you will have to pay the piper. Even if you can’t pay you should still file, because it saves you some penalties! You will still owe interest and it will become a collection issue, but at least you are compliant with your obligation to file your taxes.

A Scary Story

Recently, we had a client come in who was behind for many years. We were filing all the way back to 2015. They were self-employed in this time and, as such, were responsible for paying both the employer and employee CPP contributions on their net income. The CRA had notionally assessed the taxpayer and set the income at approximately $60,000, based on the previous year’s income levels.

Fast forward to 2023. We have prepared eight years of returns.

We went and looked at the assessments to confirm everything went through alright and there was a difference of nearly $5,000 in taxes. This was because the full CPP was still payable based on the $60,000 net income that they had used for their notional assessment, even though filings were now being made and CPP was to be paid based on actual amounts.

There is a rule that you are not allowed to recoup CPP overpayments after four years. This generally applies to payments that were actually made (as opposed to missed ones as in this case), but apparently it applies to the notional assessment as well.

So now, in addition to the late penalties and interest on tax owing, the person owes an additional $5,000 PER YEAR, plus penalties and interest on that amount as well!

I will not share the total amount of the tax bill here, but suffice to say it was significant.

Three Big Lessons to Learn:

  1. File your returns on time! Yes, even if you know you cannot pay what you will owe.
  2. Catch up on late filings ASAP
  3. Review your assessments when they come in.

Are you Behind on Taxes?

The best time to fix this is now. Why wait? You are only accruing more interest and more penalties! Book an appointment today and we will get started on filing back as far as we need to.

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.