For many of us the thought of having to file our taxes is about as appealing as ‘do it yourself’ dentistry. However there are several very good reasons why we should stop procrastinating, grit our teeth and "git’er done" by April 30.
• Penalties
No, it’s not just because the government is scary and carries a big stick. Let’s face it one of the reasons that we stay up until 11:59 p.m. to make sure our return is submitted on time is because we don’t want to pay, and pay, and pay.
If you don’t file your 2013 tax return on time and you owe tax, you will be charged a late-filing penalty of five per cent of your balance owing plus one per cent of your balance owing for each month your tax return is late for a maximum of 12 months. And let’s not forget the interest, CRA will start charging you compound daily interest starting on May 1 on any unpaid amounts owning. And it gets worse if you are a late offender.
TAX TIP even if you know you can’t pay your balance on time, if you simply file the return on time you will avoid the late-filing penalty. You will still be charged interest on the balance, but not the penalty, since you filed on time. Additionally if you feel there was a legitimate reason for not filing on time you can submit a request to have the penalties reversed.
• Benefits
While penalties might be the governments stick, your benefits are the carrot to get you motivated to file. Your net income is used as a factor in determining your eligibility for monthly benefit payments such as Canada child tax benefit, old age security benefits, and GST/HST credits. If your income tax return isn’t filed on time, then your expected payments won’t arrive on time either.
TAX TIP by not filing you may be walking about from free money in the form of tax refunds and credits. Students can claim the cost of tuition and an education amounts. If you don’t have enough income to claim these deductions, then you can carry the deductions forward into a year when you earn more. Or, if your tax has been reduced to zero, you can transfer the credits to a parent, grandparent, spouse or common-law partner.
• Tax Refund
It’s your money, if you are expecting a tax refund this is money that you have overpaid to the government. In essence you are providing the government with an interest free loan. Some people consider this a forced savings plan or a windfall but since the government isn’t going to pay interest to you, you are much better off to talk to your financial planner and create an investment plan.
TAX TIP even if you are still in school or not earning enough to pay income tax you should still file. Every Canadian has a person tax exemption amount (for 2013 it’s $11,038) that means that you don’t have to pay tax on any earning equal to or less than this amount. However if you worked throughout the year your employer may have deducted income taxes from your pay. If so then you are eligible to get some or all of it back. Additionally you will start to build up RRSP contribution room that you can carry forward to claim during future years of higher returns.
• Applying for a loan or mortgage
If you are considering borrowing funds you will need to be able to prove how much you earn. If you are a small business owner then most Financial Institutions will want to see your last three notices of assessment to determine your average income.
TAX TIP your notice of assessment (NOA) is the form that is sent back to you from the government summarizing your income tax filing and any changes that have been applied from CRA. You should keep this form with your other tax information. It contains your next year’s RRSP contribution room.
Happy filing!
Joan Burdeniuk is the Fort St. James Integris Credit Union branch manager and has nearly two decades of financial management experience