Back Taxes: Unfiled Tax Returns
What are Back Taxes?
Like most individuals, after you file your tax returns, your tax burden for the year has been lifted. You performed your due diligence and legal requirement of reporting your income to the government. But what happens if you incorrectly reported your income or have not filed your tax returns for multiple years? If this occurs, not only are you still responsible for the taxes on the balance of the unreported income and overdue tax returns, but severe penalties can be imposed. The situation discussed above refers to back taxes. Back taxes are taxes owed from a previous reporting period. Anytime that an individual owes taxes but, for whatever reason, does not pay them when they are due, back taxes have occurred. You, the taxpayer, are completely liable for any underpayment of taxes regardless if it occurred intentionally or by accident.
The Back Tax Penalty Possibilities
Typically, the Canada Revenue Agency (“CRA”) is only allowed to reassess your tax returns within three years from the date it is initially assessed. Any attempt by the CRA to adjust the amount of taxes owed after this period would normally not be allowed, or statute-barred. However, there are exceptions, including when a taxpayer has made a misrepresentation, wilful or otherwise, in filing the return or supplying the information. Incorrectly reporting income would fall into this exception. This means that any incorrectly reported income, taxes owed and related penalties can be brought to your attention to be paid at any time in the future. Penalties can range from a repayment of your back taxes with interest, penalties, and even criminal prosecution. The CRA charges daily compounded interest on any owed balance from a previous year, starting from the date it was owed. As you can imagine, the amount owed to the government can increase exponentially just from a reporting mistake.
What should you do?
There are a few things you can do to help avoid the looming nature of back taxes. Firstly, you can avoid back taxes altogether. To do this, consider hiring a tax professional to help with your tax returns. This will ensure that all income is properly reported, applicable deductions and credits are claimed; this will prevent future tax issues. If you notice that you made a mistake in your filing before the CRA does, you can take advantage of Revenue Canada’s Voluntary Disclosure program. Under this program, taxpayers can voluntarily come forward and correct inaccurate/incomplete information or disclose information that was not reported previously. By doing this, taxpayers may avoid being penalized or prosecuted. This requires filling out official documentation. A tax professional can assist you through this process and ensure that no further problems occur. If CRA accepts the voluntary disclosure, you may be able to reduce the penalties, interest and avoid prosecution. Tax professionals are experienced at negotiating with the CRA on your behalf. Additionally, tax professionals can assist you in properly filing your tax returns to ensure a speedy resolution.
Tax Doctors Canada has been serving happy clients for over 20 years. Our professional certified general accountants will file all your unfiled tax returns and maximize your tax savings. We can also help with your tax planning to future reduce the tax you pay.
Do not hesitate any longer, call toll free at 1 855 TAX DOCS (855 829 3627) or use our convenient contact web form on this page for a free initial no obligation consultation for your personal and business back tax requirements. The professional accountants at Tax Doctors Canada can negotiate a settlement for you with the tax department and possibly save you interest, penalties and prosecution. There are Tax Doctors Canada locations in Mississauga, Toronto and Markham to serve you.
Contact us using the web form below or call toll free at 1 855 TAX DOCS (855 829 3627) for a a free no obligation consultation. We have convenient locations in Mississauga, Toronto and Markham to serve you.