Loading Website ...

Update:

For those of your being contacted by your Swiss bank managers please read the following post for some updated information on disclosing foreign Swiss bank accounts and how they relate to Voluntary Disclosure. Any questions please call me at 250-381-2400.

QUESTION

Hello,

This is quite embarrassing to admit, however I really need to take care of this ASAP. I’m currently 3 years behind in filing my Canadian T1 tax returns. I’ll be applying for a mortgage pre-approval in a few months and I really need to catch up on my tax filings.

I’ve yet to be asked by CRA for my returns which is not surprising because I didn’t really start making money and earning income until I got out of school 3 years ago.

When I finished school I started a little landscaping business and it’s grown fairly significantly over the last 3 years. Here’s a snapshot of what I’ve earned:

  • 2009 – $30,000
  • 2010 – $65,000
  • 2011 – $82,000

These figures are net income figures after related expenses. Although I did a good job of accounting for my income in quickbooks I never got around to actually filing my returns.

I know I’ll owe a fair amount of tax, however I’m also hoping that my tuition credits will help reduce this eventual amount.

This is my big question…

Should I prepare and submit all my late returns together or should I call CRA and discuss how to proceed. I’m worried that I’ll be highly penalized if I don’t proceed in an intelligent manner.

Do you have any experience with filing late tax returns?

Thanks for your time.

XXXXXX

ANSWER

Hi XXXX

Getting those late tax returns to CRA should definitely be your priority, however it would be wise not to call CRA just yet.

The Canada Revenue Agency administers the Voluntary Disclosure Program which allows Canadian taxpayers to voluntarily submit late tax returns if they meet specific criteria. If approved under the program a delinquent taxpayers can often have penalties waived on late returns. This can be a significant savings, especially for those with large late tax balances.

Considering your income for 2009, 2010 and 2011 you’ll most likely owe a sizable amount of tax to CRA. Penalties on these overdue amounts will be 5% of the original balance and 1% per month in addition for amounts that remain unpaid (interest charges will also apply). The second consideration once the tax returns are finalized is to assess whether you qualify for Voluntary Disclosure.

You can read more about the program on CRA’s website here.

The VDP Income Tax Circular can be viewed here. It contains all the detail about the program.

In brief, in order to qualify for penalty relief you’ll have to meet 4 of the following criteria:

  1. The Disclosure Must be Voluntary – Sounds like you’ll most likely meet this criteria as long as CRA has not already requested the past due tax returns from you already or you’re aware of any outstanding review or audit that is currently in progress at the department with respect to your returns.
  2. The Disclosure Must be Complete – When you submit your late tax returns you’ll need to ensure not only that the tax returns are 100% complete and accurate, but that all other necessary forms and tax requirements have been met e.g. HST, etc.
  3. The Disclosure Must Involve a Penalty – It’s highly likely that your returns will include taxes owing and penalties will apply.
  4. One of the Returns Needs to be at Least 1 Year Overdue – You’ll meet this criteria.

If you meet all 4 criteria listed above you’ll most likely qualify for penalty relief. It’s always good practice, although technically not required to file the returns with a RC199 VDP form. This will ensure that you’ve submitted all required information for disclosure.

Once the tax returns and RC199 have been submitted you’ll need to wait for the departments reply. In most cases this should take 4 to 6 weeks (maybe longer in busy periods) to obtain a response from CRA.

Please note that information outlined above should be used for informational purposes only and should not be relied upon as professional advice for your particular situation. You’ll need to engage a competent professional to properly review and assess your situation before fully understanding your tax requirements.

If you have any questions about the above information please don’t hesitate to call me at 250-381-2400 and I would be glad to help you through the process.

Regards

Phil Hogan, CA
250-381-2400
phil@hutcheson.ca

 

Phil Hogan

Phil Hogan is a Canadian and US CPA working with clients throughout Canada and the US. Phil advises on cross border tax and financial planning matters. Phil can be reached at phil@hutcheson.ca or via telephone at 250-661-9417. You can also read more about Phil at Hutcheson.ca/phil.
Phil Hogan

8 Responses to “Filing Late Canadian Back Taxes for 3 Years – Need Help!”

  1. Steve says:

    I filled out my 2015 income tax from us and Canada and i never got it its still in canada thanks

  2. Jerry says:

    I have not filed a Corporate Tax Return since incorporating – as my business closed within a few months of starting. With limited income and after expenses – I will have a loss for the 1st year (2014) – and I will have nil returns for 2015-2017. Thereafter, I wish to wind down the corporation. What are my options here – do I have to pay penalties as there was no net income to report.

  3. William says:

    How late can I file? Can I file a return that is 8 years late?

    I am owed money. I don’t owe CRA.

    I just don’t know how late CRA will accept a return.

  4. Marijana says:

    We rent condo in US for last 5 years and we reported couple of thousands of rental income on 1040 form. We did not calculated Depreciation since we did not pay any taxes. When we calculate depreciation we have loss. Now we realize we were misinformed and we should have reported rental property in Canada. How to correct all 5 years tax returns in Canada? If we calculate CCA we will have rental loss. What to do now? Thanks!

  5. James says:

    Hi I am a comedian who has been living in Japan for many years. I left Canada to live in Japan in 1997 of August. I didn’t file a tax return for that year because I didn’t think that I needed to. After many years of living in Japan I am thinking of moving back. Since getting my permanent residence status in Japan and being considered as a resident here will I be owing money to revenue Canada? My last employment was at Scotia Bank in 1996-1997. How do I determine my residential status?

    Thank you!

    James

  6. Luke says:

    Should the voluntary disclosure be sent in before the tax returns or with them at the same time?

  7. john says:

    I’m not sure if this works all the time.

    I tried to file some late returns using the voluntary disclosure forms and I received a letter a few months later saying that I didn’t qualify for the program because CRA had contacted me for one of my returns a year ago.

    Be warned, this program is not for everyone. I ended up paying over $1,200 in penalties alone.

    John

    • Phil Hogan Phil Hogan, CA says:

      John

      Sorry to hear your voluntary disclosure wasn’t approved.

      One of the criteria for a successful voluntary disclosure is that CRA will not accept a VD if the taxpayer has already been contacted by CRA with respect to the late returns.

      Phil

Leave a Reply

Your email address will not be published. Required fields are marked *

Philip Hogan

Contact Philip Hogan

Contact Me

The information contained in this article is for general use only and should not be viewed as professional advice. Accounting and tax rules and regulations regularly change and individuals should contact a competent professional to obtain accounting and tax advice based on their specific situation.

Phil Hogan

Phil Hogan is a Canadian and US CPA working with clients throughout Canada and the US. Phil advises on cross border tax and financial planning matters. Phil can be reached at phil@hutcheson.ca or via telephone at 250-661-9417. You can also read more about Phil at Hutcheson.ca/phil.
Phil Hogan

OTHER ARTICLES

More from this Author

Our dynamic Team are always contributing the latest tips and techniques to keep you in the know with all things tax, accounting, and bookkeeping. See more from this author below.