Tax-filing tips: What to do when you have a 'balance due'

If you have been shocked to find a balance due rather than a refund, be sure to file your return before midnight April 30 to avoid late filing penalties. This is an important first step in keeping more money, even if you can’t pay your bill immediately.

Another good option for do-it-yourself tax filers: You may wish to have a pro look over your return (or prior returns) to see if they can find something you missed. But don’t use the ostrich approach. Failure to file is expensive. Gross negligence penalties of 50% of taxes owing can be added to your bill. Interest will compound on that on a dailybasis. That’s aside from these late filing penalties:

·      5% of amount owing plus 1% per month for 12 months

·      10% of amount owing plus 2% per month for 20 months if you were charged a late-filing penalty in any of the preceding three tax years.

Taxpayers who are found to participate in tax evasion will face more penalties by being charged with an offense. When a taxpayer is found guilty of an offense, a criminal prosecution takes place. While in the case of gross negligence, the burden of proof is on the taxpayer, in tax-evasion cases, the burden is on the Canada Revenue Agency to show that there was willful intent to understate income, overstate deductions and credits, and that there is no reasonable doubt of the crime.

Those convicted of tax evasion face a series of penalties, the most common of which is a fine of not less than 100% and not more than 200% of the tax sought to be evaded or credits sought to be gained. This penalty could also be accompanied by a prison term of not more than five years. This is in addition to the administrative penalties CRA can charge.

The bottom line

Tax avoidance– arranging your affairs within the framework of the law to pay the least taxes legally possible – is your right, and it’s legal. Tax evasion, however, is a criminal offence if you willfully miss paying taxes, mess with the books, or stick your head in the sand and don’t file at all.

Courtesy Fundata Canada Inc.© 2015. Evelyn Jacks is president of Knowledge Bureau. This article originally appeared in the Knowledge Bureau Report. Reprinted with permission. All rights reserved.