Income Tax

Your annual tax return is how you report your income and calculate the taxes you owe.

Not everyone is required to file an annual income tax return but returns must be filed in the following situations...

Individuals must file a tax return if they owe income tax. If you are an employee taxes are deducted from your pay but you could still owe taxes. The amount taken off is only an estimate of what you will owe based on your earnings. Things like whether you earned any income outside of your regular job or changes to people who are considered your dependants can affect the actual amount owing.

Filing a return is also required if capital property, such as a vacation home or stocks and bonds, are sold.

With the exception of registered charities, all corporations must file a corporate income tax return every tax year, regardless of whether or not there is any tax payable.

You must also file a tax return if the CRA makes a demand for filing even if there is no tax owing.

If you do not file as required the CRA can determine the amount of tax you owe based on their estimates of your income without having your information. If you fail to file you will also have to pay a penalty based on the amount of tax you owe. Failing to file a return as required may also result in criminal charges. Criminal charges can be laid even if no formal demand to file has been made. In practice, it is unusual for CRA to file criminal charges without having first made a demand for filing but they can.

The due date for filing individual income tax returns is April 30, or the following Monday if the 30th happens to fall on a weekend. If you fail to file your return on time you will be charged a late-filing penalty based on the amount owing.

Even if you do not have to file a tax return you may want to in certain situations such as...

• If you have a refund owing you must file in order to receive the refund.
• You need to file an income tax return to be eligible for some benefits and rebates, such as the GST rebate.
• Filing a return can increase your RRSP deduction limit in the future or establish your contribution room for a tax-free savings account (TFSA).
• The CRA normally has three years to reassess your return from the time it is filed. If you do not file for any given year the CRA can reassess that year at any time. A reassessment provides the CRA with a further opportunity to scrutinize your return and make any required adjustments, typically not in your favour. It is important to note that the normal reassessment period does not apply in situations involving fraud or intentional misrepresentation.

When you do file you must ensure that you record all sources of income, worldwide, accurately and completely. Our tax system is based on self-reporting. Not paying your taxes is against the law, whether it is a result of never filing a return or filing an incomplete or inaccurate return. The consequences for deliberately avoiding taxes by either not fully reporting your income or falsely claiming expenses - or simply not filing a return as required - can be harsh.

Under our tax system the CRA has a policy of promoting voluntary compliance with our tax laws. Under the Voluntary Disclosures Program taxpayers can come forward and correct inaccurate or incomplete tax information or disclose unreported information.

Under the program taxpayers do not face prosecution and can have penalties reduced or eliminated. You still need to pay any taxes owing, plus related interest. There are certain criteria that must be met, including the requirement that an application for the program be made before the CRA has contacted the taxpayer regarding the tax years in question.