Don’t cheat, do communicate.
While Canada’s income tax system is based on self-reporting, the Canada Revenue Agency wants to make sure people do indeed report all their income. At the same time, it has provisions for Canadians to rectify “mistakes” and also to make arrangements if they can’t pay the tax owing.
Computer power makes quick work of matching the income provided on the various tax slips with what you report on your tax return.
Even when you don’t declare cash or other undocumented income, the CRA can track you down when it examines various business records – or it receives a tip from a disgruntled ex-partner, former friend, unhappy tenant and so on that you might not have been declaring all your income.
And I’m sure the CRA has seen it all – like the person who invented several fictitious rental properties and then claimed fictitious expenses which exceeded the fictitious income so he could use the loss to reduce his income and tax.
While the CRA has a variety of “weapons” to punish evaders like this phony landlord – attaching wages, applying penalties, taking (and publicizing) court action which could lead to a jail term – the tax office also gives people who “forgot” to declare income the opportunity to take part in its Voluntary Disclosure Program.
If you disclose all necessary information about the undeclared income before the CRA starts action against you, penalties/prosecution could be waived although you still have to pay the taxes owing plus interest.
The CRA will negotiate a repayment program if you can’t afford to pay the tax you owe.
As long as you file your return by the deadline – postmarked by May 2 because the normal April 30 deadline falls on a Saturday this year – you will avoid the late filing penalty even if you don’t include the tax you owe (although interest charges will start to accrue).
The CRA usually favours late payment proposals with postdated cheques or a similar commitment to pay the money owing.
Mike Grenby is a columnist and personal financial advisor. Email: [email protected].
