News Article

Evelyn Jacks: A double-header tax deadline

Posted: June 13, 2012

Midnight, June 15 is the deadline for individuals who own an unincorporated small business to file their income taxes. It is also the day that those who pay their income taxes on the quarterly instalment plan must make their second-quarter payment. Missing either of those deadlines could prove costly.

Filing the personal return for proprietorships. The tax-filing deadline is midnight April 30 for most taxpayers. The exception is unincorporated small-business owners and their spouses; for them it is June 15. But, and this is the catch, if you owe taxes when you do file, the interest begins accruing as of May 1. This is not inexpensive: interest costs are calculated at the prescribed rate, which is determined quarterly (currently 1%) plus 4% ó for a total of 5% ó compounding daily.

If you miss filing a return by June 15, the consequences are even harder on the pocketbook. When you fail to file, you set yourself up for late-filing penalties:

1. First failure to file a return on time: the penalty is 5% of unpaid taxes plus 1% a month up to a maximum of 12 months from the filing due date.

2. Subsequent failure to file on time within a three-year period warrants a penalty of 10% of unpaid taxes plus 2% a month to a maximum of 20 months from filing due date.

Further, on assessment of your taxes, the Canada Revenue Agency (CRA) can apply a gross negligence penalty if there has been an omission of information, including failure to file a return. This amounts to 50% of taxes payable.

So, filing an accurate return is important; take the time to disclose all sources of income and back up your income and your expenditures with orderly files in soft and/or hard copy.

If the CRA suspects you are willfully evading taxes and the court agrees, the penalties are stiffer still. (Note the fate of the Desautels above.) Tax evasion is the act of making false or deceptive statements in order to reduce or eliminate taxes or falsely claim refundable credits. Also, you can be guilty of this crime if you participate in destroying, altering, mutilating or otherwise disposing of records or books of account. If convicted of tax evasion, besides paying the taxes, you are liable for a fine of not less than 50% and not more than double the amount of the taxes that were sought to be evaded, and/or imprisonment for a term not exceeding two years.

Quarterly instalments. If you remit your income taxes quarterly, you must file your second instalment by midnight, June 15, to avoid interest penalties on the prepayment of your 2012 taxes due. The CRA usually sends a billing notice as a reminder. If your income picture will change in 2012 ó especially if it decreases ó you may not be required to pay the amount on your billing notice. Check with your tax advisor.

You are required to remit taxes quarterly in 2012 if your net taxes owing are $3,000 or more in 2011 or in either 2010 or 2009 ó except in Quebec. The limit for Quebec residents is $1,800, not $3,000. Farmers and fishers pay instalments only once on net self-employment income based on two-thirds of net income as of Dec. 31.

It's Your Money. Your Life. While interest and late-filing penalties may be avoided under the Taxpayer Relief Provisions in hardship cases ó such as illness, death of a family member or other factors beyond your control ó there is generally no leniency for tax delinquents or cheats. Do file on time to avoid expensive interest and penalties and reward yourself by investing the savings.

Evelyn Jacks is president of Knowledge Bureau and founder of the Distinguished Advisor Conference, now in its ninth year. This annual event attracts hundreds of top advisors from across Canada to discuss recent trends in economics, tax, investment, retirement and estate planning.
Additional Educational Resources: Distinguished Advisors Conference and Debt and Cash Flow Management self-study course.