What are the Potential Consequences of Unfiled Tax Returns?

There are many probable consequences related to unfiled tax returns. CRA will assume you are evading payment of taxes. Financial affairs and personal situations can be surprisingly sensitive to the lack of current tax filing history.

Here are some issues that you or your company may experience as a result of not having filed your tax returns:

Obtaining Credit. Financial institutions and many organizations that provide financial assistance almost always insist on the notice of assessment of corporate or personal tax returns to validate income for the purposes of debt repayment ability or qualification for program payments. If this independent proof of income is unavailable, you may not receive the financing you require at reasonable rates and terms. Spinoffs of this debacle include negative impact on credit ratings, delays for receiving benefits, grief to executors and estate beneficiaries, landlord problems and not surprisingly, really mad spouses.

Noncompliance Affects Other Areas. CPP benefits, old age security payments, spouse transfers and tax elections, student loans, GST/HST and child tax benefits will be reduced or not available. Personal tax returns of either spouses or common law partners have to be filed as family income is an important determinant of many calculations and entitlements.

You are Presumed Guilty. CRA assumes guilt until taxpayers prove themselves innocent. That is the law. Significant costs usually result if CRA takes action – warranted or not. Tax payers need to stay ahead of CRA and take advantage of the self assessing tax system – complete with valid tax planning opportunities.

CRA Will Proceed Against You. Once CRA discovers unfiled tax returns and is not satisfied with communication outcomes they often have to get attention by issuing notional (estimated) assessments (tax bills). These assessments are valid tax debts until you file the correct tax returns. These estimated assessments are usually 2 to 3 times what CRA suspects your income to be and will include penalties and interest. The collections department will act on these notional assessments.

Noncompliance Affects Others. Unfiled tax returns will affect spouses or common-law partners, business partners and customers. CRA likes group audits and may assume that there are likely others in family or business groups who are noncompliant. More importantly, if asset ownership or bank accounts are co-mingled or taxpayers have provided funds (not loans) to non arm’s length related parties; CRA is quite active in pursuing third parties for one’s tax debt.

Severe, Debilitating Costs. The cost of tax owing increases relentlessly with the application of negligence penalties, late filing penalties, interest on unpaid installments, interest on unpaid taxes, and interest on penalties. Assuming penalties and interest are applied in the usual CRA practice, you can expect your tax debt applicable to each year in arrears to double every eight years. Late filing penalties and gross negligence penalties are ‘hard’ penalties and quite difficult to dispute if the facts are not in the taxpayer’s favour.

Transferring Assets. It bears repeating – transferring assets to non arm’s-length parties (spouses, family and partners) will create jeopardy for the people who have received assets from you for what CRA will assume are for purposes of tax payment avoidance. In other words, CRA collections will demand information from you (which you must provide) that will inform them of assets that you have hidden or transferred. There exists legislation regarding fraudulent conveyances.

 

If you haven’t filed your taxes in awhile, get started today to avoid these potential consequences:

Call or e-mail (1-877-800-9343 / info@taxwatchcanada.com) for a free consultation with experienced and understanding professionals. In that time we are usually able to define your realistic options and CRA considerations that will lead to the best possible outcome for you. It is always manageable and much can be done.

All information is kept in the strictest confidence.

Read more about filing late taxes:

Our previous post: How to File Back Taxes in Canada

Or visit our Late Tax Filing page