Banka: The consequences of not filing a tax return
People who neglect to file their annual tax returns miss out on many financial benefits.
Those would include the working income tax benefit, child tax benefit and a subsidy on B.C. Medical available after you file your tax return.
If you have a capital loss, you can carry that loss backwards for three years against any capital gains to reclaim some of the tax paid on those gains in the prior years. If you were a student you would want to file to be able to carry forward your tuition tax credits and to receive your GST credit. Filing also provides more RRSP room for future contributions.
The federal credits available to you when filing include basic personal amount, age credit, volunteer fire fighters tax credit, public transit passes, child fitness tax credit, child arts tax credit, working income tax benefit, GST credit, child tax benefit, first-time home buyer tax credit, adoption tax credit, pension income tax credit, disability tax credit, tuition tax credit, medical expense tax credit, dividend tax credit and foreign tax credit, medical expense supplement.
There are additional credits available to families such as the spousal tax credit, credit for children and credit for infirm dependents and most recently the addition of the caregiver’s tax credit.
The specific B.C. provincial credits available include the adoption credit, transit pass credit, employment income credit, child fitness credit, credit for each child under 18, working income tax benefit, first time home buyer tax credit, child arts tax credit, volunteer firefighters credit, logging tax credit, refundable climate credit, family bonus and earned income benefit, seniors’ renovation tax credit, political contribution tax credit, mining exploration credit, employer/employee apprenticeship credits.
You are required to file if you have tax payable in excess of the amounts already withheld on your T-slips.
So if you are a senior and the only income you have is your OAS and your CPP, technically you are not required to file because you do not have any tax owing. However, by not filing you will be missing out on the GST credit as well as the Guaranteed Income Supplement.
You are also required to file if you have income more than $3,500 because you are then required to make CPP contributions. If you are entitled to receive the child tax benefit, then you need to file a tax return to get it.
If you disposed of a capital property during the year such as shares, a rental property or a farm, you are required to file a tax return. If the disposition of the property occurred in a prior year that results in the capital gain being carried over into the next year, you are required to file a return for the subsequent capital gain.
If you had your OAS clawed back, you will need to file a tax return. If you were on Employment Insurance and were required to pay back your benefits, you need to file a return.
If you elect, as a self-employed person, to contribute to EI, you need to file a return. If you and your spouse elect to split your pension income, you will need to file a return. If you participated in the home buyer’s plan or the LifeLong Learning Plan, you need to file a return.
If you decided to leave the country and no longer be a resident of Canada, then you need to file a return. You definitely need to file a return when you receive a ‘Demand to File’ from Canada Revenue Agency. If you paid tax, and you determined that you do not have any taxable income, you will need to file a return to receive a refund of that tax.
As for the penalties if you don’t file a tax return, first there is a five per cent of the tax unpaid at the time the return was due. Then there could be an additional one per cent per month for up to 12 per cent if the return remains unfiled.
Then when you do file the return, you could be subject to the interest penalty which is based on the average quarterly rates set by the Bank of Canada plus four per cent.