The Canadian tax system has rules governing when taxes are due, penalties for late filings and exceptions for different types of tax filers. The most common due date is April 30th, so returns will be accepted as filed on time by the Canada Revenue Agency (CRA) up to midnight on Monday, April 30, 2007.
Filing on time is very important, as penalties will be applied to all taxes owing. The CRA can assess you a penalty ranging from 5% of your balance owing, plus 1% of your balance owing for each full month that your return is late, to a maximum of 12 months. Furthermore, if they charged you a late-filing penalty on a return for any of the three previous years, your late-filing penalty for 2006 will be 10% of your 2006 balance owing, plus 2% of your 2006 balance owing for each full month that your return is late, to a maximum of 20 months.
Due to these high punitive penalties it is a good idea to file your return on time even if you cannot pay the full amount owing.
If you or your spouse are filing self-employed income for 2006, you have until June 15, 2007 to file your 2006 return BUT YOU STILL HAVE TO PAY BY APRIL 30 or interest will be charged on the amount due on May 1, 2007 until the date of payment.
If you owe more than $2,000 for 2006 or did owe more than $2,000 for either 2004 or 2005, then you may have to make installment payments. The payments are in addition to what you may owe on April 30, 2007 and tend to surprise a lot of people later in the year. This is because the CRA sends out a letter to all persons liable to make installment payments in February and August of a year. If you do receive a request to make installment payments do not ignore it! Talk to your professional tax advisor to ensure the payments are still applicable to you and discuss with them the ramifications of not making the requested installment payments. In many cases, if you are asked to pay installments and you do not make the payments, interest will be applied that can be a nasty surprise come tax time.
So now that you know when you need to file, the next step is to ensure you have all documents needed to file. If you are an employee, you will receive a T4 slip from your employer by the latest the end of February. Most banks will also have sent you your T5 slips by then which report all interest earnings you may have made on your investments and bank accounts. It is important to note that if you did not receive more than $50 in interest income, you may not receive a T5 slip so do not get worried if that is the case. T3 slips are another matter. These slips do not have to be sent to you until March 31 and thus are usually the last to arrive. These slips record the amount of income you have received from mutual funds and other trust accounts so may not apply to everyone. If you do happen to miss a slip when filing and you do not notice the error until after you have filed? If this happens to you, you can file a request for an adjustment. If the CRA notices the error they will automatically amend your return and add interest on the overdue amount and possibly even penalties depending on the amount involved.
Receipts for donations made in 2006 can be claimed on your 2006 return and must also be available when filing the return. If you have made a donation but have not received an official receipt for income tax purposes, be sure to contact the charity to obtain a duplicate copy as these slips are often inspected by the Canada Revenue Agency. Medical and RRSP receipts are also needed and must accompany your return if you are filing manually.
If you are at all uncertain about any filing rules, be certain to contact your professional accountant as they can not only put your mind at ease, but also can ensure you stay inside the rules.
This article was written by Gabrielle Loren -- a partner with Loren & Company, CGA's located in North Vancouver, BC and can be reached at email@example.com, at 604-904-3807 or check out their website at www.loren.bc.ca