Last week, the Canada Revenue Agency provided some additional relief when it announced that penalties, including the late-filing penalty (five per cent of your balance owing, plus one per cent of the balance owing for each full month your return is late, to a maximum of 12 months), and arrears interest will not be charged as long as your T1 personal tax return is filed by Sept. 1, 2020 and payment is made by that date.
The CRA has also indicated that if you’re required to file Form T1135 to report any foreign investments, including foreign stocks in a Canadian non-registered brokerage account, with total cost exceeding $100,000 at any point in 2019, no penalties will be assessed provided the T1135 is also filed by Sept. 1, 2020.
The penalty relief announcement comes as welcome news for the nearly one quarter of Canadians who have not yet filed their 2019 tax returns, although the vast majority of filers are getting a tax refund and wouldn’t be subject to late-filing penalties or interest. Tax return statistics for the 2020 tax-filing season (as of May 25) show that the CRA has received about 22 million individual income tax returns for the 2019 tax year, out of an expected total of around 28.4 million, which was the number of returns that were ultimately filed for the 2018 tax year.
Among those who have filed so far, the majority (70 per cent) of filers are getting a tax refund, with the average refund to date being $1,832. Only 18 per cent of tax returns showed a balance of tax owing for 2019 (average owing of $4,660), while 12 per cent of filers had a zero balance return.
“This past week has been crazy,” said Lisa Gittens, senior tax professional with H&R Block Canada, who reports that the volume this week “meets or exceeds what we see for a normal April 30 filing deadline.”
But, is there any real rush to file by June 1 if there are no penalties as long as you file by Sept. 1?
The answer may depend on whether you are receiving income-tested government benefits, such as the Goods and Services Tax/Harmonized Sales Tax (GST/HST) credit , the Canada Child Benefit or the Guaranteed Income Supplement. The next benefit year begins in July 2020 and income from your 2019 tax return is used to determine how much you get. Filing a return on time will help minimize any impact to your benefit and credit payments, especially if your income varied somewhat between 2018 and 2019.
The CRA has indicated that if it doesn’t receive your 2019 return in time to assess it over the summer, it will use information from your 2018 return to calculate benefit and credit payments until September 2020, which will ensure that you continue to receive payments during the COVID-19 crisis.
The problem, however, is that you may not be getting correct amounts if your income varied from year to year. By filing as soon as practicably possible, you may be able to avoid this problem.
If the CRA is still unable to assess your return by early September 2020, your estimated benefits and/or credits will cease in October 2020 and you will be required to repay the estimated amounts issued to you from July 2020 onwards.
As I’ve discussed in a previous column , under the Income Tax Act , quarterly tax instalments are required for 2020 if your “net tax owing” this year will be more than $3,000 ($1,800 for Quebec tax filers) and was also greater than $3,000 in either 2019 or 2018. The definition of net tax owing is complex, but essentially refers to your net federal and provincial taxes, less income tax withheld at source, plus any CPP contribution and EI premiums (if applicable) on self-employment earnings, as well as adjustments for certain other credits and social benefit repayments.
If you received an instalment reminder in February 2020, the due date for the June 15 payment has been also been deferred to Sept. 1. The CRA has indicated that instalment penalties and interest will not be charged for this as long as it’s paid by this date.
If you receive an instalment reminder in August 2020, you may be able to reduce or not pay further instalments for 2020 if the instalments you already paid for 2020 will cover your estimated 2020 net tax owing, or your net tax owing for 2020 will be $3,000 or less ($1,800 or less for residents of Quebec).
Last-minute filing tips
If you still haven’t filed, here are some tips that can help you get the job done, while continuing to socially isolate.
If you’re tech-savvy, there are dozens of tax preparation programs available. A full list of CRA-certified software can be found online . Some of the software is completely free, while some of the paid packages provide free offerings based on individual tax situations or income levels. You can also access copies of most 2019 tax slips (T3s, T4s, T5s, RRSP contribution slips, etc.) remotely using the CRA’s Auto-fill my return feature to download tax information into the software.
If you need help, and are eligible, various community organizations throughout Canada have been hosting free virtual tax clinics where volunteers are available to prepare your taxes for free, by videoconference or by phone, through the Community Volunteer Income Tax Program (CVITP) and the Income Tax Assistance — Volunteer Program in Quebec. These virtual clinics are being held on an interim basis to help complete tax returns while still following physical distancing guidelines. A list of clinics operating in your community can be found online.
If you use a professional tax preparer or accountant to prepare and file your return, most have transitioned to virtual, contactless filing. For example, H&R Block allows its clients to take a picture of their tax slips with their phone and submit them, online, to a local preparation centre. Alternatively, clients can drop off their tax documents during office hours and a representative will call them back to complete their tax return over the phone.
Jamie Golombek, CPA, CA, CFP, CLU, TEP is the Managing Director, Tax & Estate Planning with CIBC Private Wealth Management in Toronto.
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