by Julie Jaggernath
There aren’t many people who truly look forward to filing their income tax returns, and in our busy lives it can feel like just another chore. But what many people don’t realize is that by law, we have to file a tax return in Canada every year. Even if you owe, have no income to declare, or receive no refund at all, completing your income tax return filing is important because there are benefits that we can’t claim any other way.
When the deadline for personal returns passes and if you haven’t filed, it can be tempting to push that task to the back of your mind. For those used to receiving a tax bill or only a small refund, it’s also very normal to wonder if all the work is worth it. Here are 5 reasons why you should file your income tax return in 2021, even if the April 30 deadline has already passed:
1. You Need to File Your Income Tax Return to Get a Refund, and Most People Do
Most people who file their taxes receive an income tax refund. According to CRA statistics for individual tax return filings for the 2020 tax year, 63% of people who filed their return on time got a refund averaging about $1,800. This kind of refund can help pay bills, go towards an expense you were putting off until you had more money, allow you a little splurge, jump start an emergency savings account with a TFSA (Tax-Free Savings Account), or top up your RRSP (Registered Retirement Savings Plan). Once you know how much you’ll be getting back, figure out the best way to use it. Just don’t spend it before you actually see it in your bank account!
2. Filing Your Tax Return Helps Keep Pandemic-Related Income Support Benefits
When your income tax return is filed, the government can better support you with any aid you qualify for. CERB and other temporary income support programs implemented at the start of the pandemic have been transitioned into new programs for those who need them. If you’re currently using Employment Insurance (EI), the Canada Recovery Benefit (CRB), the Canada Recovery Caregiving Benefit (CRCB), or the Canada Recovery Sickness Benefit (CRSB), then not filing your return can pause your benefits.
Not receiving the money you were counting on could make an already tense financial situation that much more stressful, so this a big reason why you should file your income tax return as soon as possible. It’s also the reason why it’s important to file your return if you had no income or only minimum income for the previous year. The sooner the government receives your income verification, the sooner your benefits will resume.
3. Your Tax Filing Helps Maintain Other Benefit Payments
Your reported household income determines which government benefits you qualify for beyond pandemic supports. Some benefits come from the federal government (e.g. Canada Child Benefit (CCB), GST/HST credits, Old Age Security (OAS)); others are provincial (e.g. rent subsidies, reduced prescription costs, nursing care). However, all depend on filing your income tax return to report your level of income.
Now that the April 30 deadline has passed, some payments might continue based on your previous year’s income. If your situation hasn’t changed much, this may not be a problem. However, if your return is processed and it’s revealed that you received money you shouldn’t have received, you will be required to repay the excess. This can be a significant financial burden until you work out a payment plan and pay back the overpayment. In normal years, benefits like GST/HST credits or CCB can be withheld and used as payment towards what you owe CRA. However, offsets like that won’t apply for money owing from the 2020 tax year.
4. File Your Income Tax Return to Qualify for Interest Relief
If you’re worried about owing CRA money and you’re just getting back on your feet after receiving COVID-19 income support payments, you may qualify for targeted interest relief. To find out, you should file your income taxes as quickly as possible. That way any eligible interest relief can be applied to your account without you having to file an additional application.
This program allows those who meet the criteria to defer paying interest on outstanding 2020 income tax debt (not from other years) until April 30, 2022. If you’re also facing the repayment of COVID-19 income support overpayments, those will be assessed on a case-by-case basis. If you’re struggling to make ends meet, these programs could provide relief and make it easier to manage your budget over the coming year.
5. Penalties & Fees Do Apply When You Don’t File Your Income Tax Return
Filing your income tax return after the deadline means that if you owe CRA money, a late filing penalty of 5% of what you owe from the 2020 tax year will be added to your account. There will also be an additional 1% added for each month you don’t pay (up to a maximum of 12 months). While there’s some interest and payment relief available due to the pandemic, these late filing fees are not part of those programs. Owing CRA money is not illegal; not filing your tax return, however, is. At least if you file you know how much you owe and can make a plan to deal with it. When it comes to income tax debt, knowing is better than not knowing.
Why to File Your Income Tax Return Even If You’re Worried About Owing Tax Debt
The thought of having tax debt can make you not want to file a tax return each year. However, not filing can impact other financial choices and opportunities when we least expect it.
- Student loan applications can be delayed if income can’t be verified.
- When applying for a mortgage, you might be required to provide a recent Notice of Assessment (NoA), which you’ll only have if you filed your taxes.
- If you had income the previous year, filing a tax return creates RRSP contribution room and allows you to carry forward unused education tax credits or transfer them to a family member.
- If you are self-employed and want a loan, you’ll need to provide several years worth of income information, both NoAs and T1 General forms.
Those afraid of owing money on their taxes often choose not to file. However, when it comes to Canada’s most powerful creditor (i.e. the CRA), it’s better to face the situation than avoid it. They’ll understand if you can’t start repaying yet because you’re still trying to recover your income from the pandemic. But you need to tell them so they know your situation and know you’ll follow up when things improve; they can’t read your mind.
Dealing with CRA Collectors & Paying Off Tax Debt
Sharing some basic information with CRA collectors will go a long way to gaining their cooperation as you get through this difficult time. It will also help around payment timelines and conditions once you are in a position to start making payments. To pay off tax debt as painlessly as possible you'll need a budget that allows for these additional payments. Contact a non-profit credit counselling organization to help you build a budget that doesn't leave you short. A credit counsellor can also provide information about other options to deal with tax debt if repaying it is not possible.
How to File Your Taxes After the April 30 Deadline
If you’re not sure how to file taxes once the deadline has passed, here are CRA’s recommended filing methods. They include hiring a tax professional or completing your return yourself if your situation is straightforward. CRA provides a lot of information on their website and you can always call them to ask any questions you may have along the way. It’s worth putting the effort in, even after the deadline, to get your taxes filed.