When I first started my career, I wrote a column about why people procrastinate in filing their taxes. I interviewed an accountant whose business thrived in one area of specialization — filing late tax returns for individuals who were behind by at least five years. My research indicated that fear was the main inhibitor for late files.
Simply put, tax procrastinators are generally scared that they’ll owe money and won’t have a way to pay it back. That fear breeds disorganization, making the situation far worse, and forces the individual to pay massive fees of many thousands of dollars to specialty accountants, like my interviewee, to clean up the mess. These exorbitant costs can be avoided by filing on time.
We’re days away from Canada’s personal tax filing (and paying) deadline, which is April 30, so here’s how to deal with the fear of filing your taxes.
Most Canadians get a refund: Thus far this year, and for the majority of the past decade, approximately two thirds of Canadians actually receive a tax refund averaging just over $1,600. So, if you’ve been late filing, or are simply scared of taxes in general, chances are that you might actually get a refund.
If you’re in a position where you are receiving a refund, I’d recommend being thoughtful about how the money is allocated, such as putting it toward savings or paying off a credit card balance, rather than racing out to buy a flight to Singapore just for kicks.
You could be leaving money for tax credits on the table:By filing your taxes, you are automatically assessed for whether you qualify for the GST/HST rebate (a quarterly payment for lower income individuals). and if you’ve got children, the amount of your Canada child benefit is calculated based on your income tax filing. These credits were a major incentive for me to file when I was in university, and subsequently a new graduate, making very little money.
If you’re late, get yourself as organized as possible: Specialty accountants make a fair portion of their fee by organizing your paperwork. They’ll help you source old tax forms from former employers or investment providers as well as sort through stacks of receipts you’ve shoved into shoeboxes. But, you can do a lot of this yourself and massively reduce what you pay the accountant.
Create an account on CRA My Account and look up the tax forms that apply to each previous year. Then organize your other receipts for things like charitable donations or medical expenses by year. Can’t find what you’re looking for? Follow up with the vendor and they will have a record of your receipts. Once you’re armed with all of this information, engage a trusted accountant.
If you owe, pay the balance expeditiously: If you owe money and file late, there are CRA penalties and you’ll also pay interest on what is owed. Take control of this unfortunate situation so that it doesn’t breed additional fear. First, find out why you owe and what you can do about it for next year such as increasing your taxes on payroll. Second, pay the bill on time! You might need to take this money from your savings, or in worse cases, borrow money from the bank or a family member and then pay it back quickly. Third, if this is likely to happen next year, start setting aside money in a savings account right away so that you are prepared.
Take control of your taxes by filing regularly, which will help you predict, and plan for, your tax situation in the future.