Are you a last minute tax return filer? If you are, you’re not alone. Ask any accountant and they’ll tell you that April 30th is by far the busiest (and possibly most dreaded) day of the year. That’s because, according to a survey conducted by Angus Reid, 20 percent of Canadians file their taxes just before the annual deadline, and three percent file their return late. But while last minute filing is not an uncommon practice, that doesn’t mean it’s not a dangerous one. Not only does leaving your tax return to the last minute tend to give people stress headaches and make them want to throw all of their receipts out the window, it can also lead to real financial consequences.
The Problem with Procrastination
“If you forget to include a pay stub, you could face a fine of up to $100.”
As anyone who has ever had to hand in an essay will know, leaving a task until the last minute means that you don’t always give the task the attention it deserves. This could lead to mistakes and omissions, and in the case of your tax return, these errors could cost you.
The biggest danger to be aware of is missing income. If you forget to include a paystub or otherwise miscalculate your income to be lower than it actually is, you could face a fine of up to $100 – according to the Canada Revenue Agency (CRA), the penalty for false statements or omissions is either 50 percent of the tax withheld because of the false statement, or $100, depending on which is greater. And for repeat offenders, the fine gets bigger. What’s worse, if you accidentally destroy any proof of income document that you’ve forgotten to declare, you would have no way to defend yourself in the case of an audit. The same holds true for other important documents like sales receipts and charitable donation records.
Even if you’re a skilled procrastinator and you’re able to get your return together without forgetting any important documents, there’s also the possibility that some documents simply won’t be available if you wait until the last minute to retrieve them. In order to qualify for a tax credit on your child’s music lessons, for example, you need to prove that your child was enrolled at a qualifying institution for a minimum number of lessons. Music schools don’t always have this information readily available, so you could end up waiting weeks in order to receive the documentation you need, at which point you could end up missing the filing deadline. The same can be said for things like disability credits and university tuition credits. Not only could you miss out on deductions by waiting too long to collect this information, you could also be leaving yourself open to penalties if you overestimate the amount for these credits.
Late Filing Penalties
As it gets closer to April 30th, last minute filers will be left with two options: rushing to get their return done on time (and potentially missing vital information), and paying the late filing fine in order to give themselves time to complete their return properly. The penalty for late filing depends on whether you owe money on your taxes or not. If the government owes you a refund, the only penalty is that it takes you longer to receive this refund. If you owe money, however, the penalty for late filing is five percent of the balance owing plus one percent for every month that passes before you file your return (up to a period of 12 months).
“Depending on the state of your return, it may be worthwhile to bite the bullet and pay the late filing fee.”
Depending on the state of your return, it may be worthwhile to bite the bullet and pay the late filing fee. Contrary to popular belief, there’s no proof that filing a late tax return makes you more likely to get audited. What is more likely to lead to an audit, however, is a poorly completed tax return, especially if you have a habit of rushing through your taxes and leaving out important information.
Tips for Last Minute Filers
If you find yourself panicking that you won’t be able to finish your tax return on time, here are a few tips to help you out.
- File online and consider paying for an online filing service. If you’re preparing your return yourself, filing online with CRA is the quickest way to do it. In addition, you may find it worthwhile to pay a small fee and use an online filing service that makes the job easier for you.
- If you realize you’ve made a mistake after filing your return, correct it as soon as possible. Even if you submit relevant documents after the fact, you may still be able to change the amount of your tax refund or avoid non-disclosure fines.
- Set up a filing system and plan on starting earlier next year. If you find it hard to get yourself motivated to start early next time, just remember that early filing means that you could end up seeing your refund cheque much earlier as well.
- Relax. Late filing isn’t the end of the world. Even if you end up paying the late filing fee, sending in a late return is much better than not completing a return at all.
For more tax saving tips, check out our recent post on How to Maximize Your Tax Return This Spring, or revisit our Income Tax Cheat Sheet.