What about my taxes – May 2020 Edition

At the beginning of May, we tend to take a short break (day off) after filing as many tax returns as humanly possible over the previous two months. However, due to COVID-19, we have another month to go, and even more people we’re hoping to help! That’s right, if you haven’t filed yet, you aren’t late this year as the deadline has been moved to Monday, June 1st, 2020. Also, if you happen to owe taxes, there are no penalties as long as you file on time, and no interest being calculated until August 31st, which is a nice deferral for those in a tough financial spot right now. 

What a lot of people forget to realize is that filing your taxes is better than not filing them. I’ve had several clients tell me that they want to wait on filing because they cannot afford to do it right now, or that it won’t really make a difference. Simply put, that’s just not true, and I’ll explain below why it is always better to file on time regardless of your situation. 

“I’m in a refund, I’ll get around to it eventually.”

So CRA owes you money and you do not want to collect it? Processing time can range from 2 weeks to several months, so by waiting to file you are prolonging the process and not putting that money to any use. Consider that there are a few different ways you can get a refund – through overpaying on income tax, CPP and/or EI, through tax rebates, through childcare benefits, or income subsidies for starters. These refunds all require you to file your taxes by a certain time to getting a cheque in the mail or having regular benefits continue. If you file late, these benefits can be interrupted or even cancelled and getting them restarted can take even longer. When you owe CRA money, they will charge you interest or penalties, but when they owe you money, you will not likely see any interest added onto the balance.

“I won’t owe anything, so it really doesn’t matter.”

Again, I refer to benefits. Even if you do not owe taxes because you have a nil ($0) filing, or know you have been taxed correctly, benefits or subsidies you might be used to getting can be interrupted or delayed. As well, until your taxes are up-to-date, applying for a loan or other services might be dependent on having current taxes filed. Unless you are in a position where you know all the things you can claim for taxes, which benefits you may or may not get and what might happen between now and when you do get around to filing, it is something that still needs to get done. Several companies looking to apply for the interest-free-loan available due to COVID-19 have been in a rush to get their taxes filed as banks have been requesting a copy of their returns (T2 Corporate Tax Return) before they can get the loan. This means for companies that need to pay their employees or keep the lights on, they need to have their taxes filed as soon as possible. Luckily individuals are not in the same position for applying for CERB, but getting different kinds of social assistance (such as the GST Credit or Alberta Senior’s subsidies) depend on having your taxes filed.

“I’m going to owe, and want to wait until I have the money.”

 Can you keep a secret? You already owe that money and filing doesn’t change that. What does change is the amount that you owe. If you are in a payable position, filing on time means that CRA will charge you interest, monthly, on the balance, and you might be requested to make periodic installment payments throughout the year. This can be scary for people who know they can’t pay the balance they figure they owe, or the installment payments. However, not filing doesn’t change that. In fact, by not filing, the amount you owe has increased by at least 5%, and interest and installments now need to account for that amount too. Let’s say you are going to owe $10,000, and you don’t have $10,000. Talking to a tax professional might be able to help you find some deductions to reduce that amount, but they could do that for you in April, or September, so in trying to save money – it is better to give your accountant a call before the deadline. So, $10,000 – scary. Every month you are going to get charged interest on that amount, let’s say 1%/month, so $10,100 after 1 month late, $10,201 after 2 months, $10,303 after 3 months, etc. The interest compounds, so every month you now owe interest on last month’s interest too. If you file your taxes 3 months late, you don’t owe $10,000 at that time. You owed that $10,000 a good 3 months ago. But now, because it is late, you owe an additional $800 in late filing fees (also due as of the filing deadline). At the 3-month mark, you actually owe $11,127. That’s an extra $824 you threw away all because you didn’t file by the deadline.

At Zablocki & Associates our goal is to help our clients save money both now and in the future. Recently we contacted hundreds of clients to remind them about the change in deadlines and to see if we can help them get their information prepared and taxes filed. That is part of our standard service we give all clients at no extra cost. We provide pickup and delivery, as well as online interaction and E-filing options, and we now do so with copious amounts of sanitizer to keep everyone safe and healthy. Please give us a call, or send us an email, regardless of your financial situation and we’ll see what we can do to help you during this tough time while keeping everyone safe and healthy.