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Why it pays to file your taxes on time

Morgan Brayton isn't sure how it started, but six years ago she missed the deadline to file her income tax.

"I'd done some work in both Canada and the U.S.," recalls the Vancouver writer/performer, "and it was all pretty confusing and overwhelming. So I did my ostrich thing and stuck my head in the sand."

Now married to a U.S. citizen, Brayton is struggling to get caught up with the Canada Revenue Agency, or CRA, so her spouse can proceed with her immigration status.

The kind of procrastination and stress Brayton is experiencing is the hallmark of people who are delinquent in filing their annual tax returns. As for how it starts, "we've seen everything," says Karen Anderson, a chartered accountant with Deloitte, in Toronto. "It may be something in their personal life or people who just can't seem to get it done. And then it snowballs from there."

Take the initiative
The solution is to get to Canada Revenue Agency before it gets to you.

"It's pretty straightforward. You apply under CRA's Voluntary Disclosure Program in person or by sending a letter saying, 'I haven't filed for however many years, and now I'm going to file,'" says Anderson. "If you provide full disclosure within a reasonable period of time (CRA's rules state this is normally 90 days), there should be no problem."

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The CRA will assess your return and levy interest on any taxes owing. The rate of interest is posted each quarter on the CRA website and is currently set at nine per cent. (Note that if the shoe is on the other foot and the CRA owes you a refund, it only pays seven per cent interest.)  Late filers can offer explanations of hardship to CRA and repayment terms can be negotiated. Providing you took the initiative -- i.e., that this was truly a voluntary disclosure -- no penalties are levied. If you disagree with any CRA assessments, the usual rules for appeal will apply. You don't have to make payments until disputes are decided, but interest continues to accrue.

Getting caught
If, however, you didn't take the initiative and the CRA caught up with you, it can access your records and conduct a review to establish a net worth assessment that includes assets such as real estate or investments. Seizure of property or wages is possible if you don't pay the amount owing. In addition, you'll pay some hefty penalties.

Penalties are set at five per cent plus one per cent per month to a maximum of 12 months, making the maximum penalty 17 per cent. "If a late-filing penalty has been assessed previously, there is a harsher penalty of 10 per cent plus two per cent per month for up to 20 months," for a maximum penalty of 50 per cent of the unpaid tax, according to Anderson.

Brayton may find herself in this position since this isn't the first time she's been a tax delinquent. The previous time, "my father connected me to his accountant. I made arrangements and paid the interest and penalties." Being in this position again, she says, makes her feel "like I haven't grown up. It makes you feel childish."


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-- Posted: March 21, 2007
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