Insights · Filing & compliance
Unfiled tax returns are easiest to fix in the quiet months
If you have unfiled tax returns sitting behind you — a personal return, a corporate return, or several years of both — right now is the easiest time of year to deal with them. Once February arrives, every accountant in the province is booked and the same work takes weeks longer.
Robert Occhiuto, CPA, CA · [[SET DATE]]
Most people who fall behind on filing did not decide to. A year got busy, one return got skipped, and skipping the next one felt easier than explaining the first. Corporations drift the same way — a year-end passes, the bookkeeping isn't finished, and the T2 quietly goes unfiled.
There is nothing unusual about it and nothing that can't be sorted out. What follows is what a filed return actually does for you — personally and corporately — and why the months before tax season are the practical time to catch up.
What the personal return does
A T1 is not only a tax calculation. It is the document the rest of the system reads.
- Benefits are calculated from it. The Canada Child Benefit, the GST/HST credit, the Ontario Trillium Benefit, the Canada Workers Benefit and the Guaranteed Income Supplement are all assessed from filed returns — and for couples, from both returns. Miss a year and payments stop.
- RRSP room only exists once income is reported. Contribution room is built from earned income on a filed return. Unreported years create no room.
- Carryforwards get recorded. Tuition credits, capital losses and unused donations are tracked through filings. They are still available later, but only if the years they arose in are on file.
- A refund is only issued once a return is assessed. If you are owed money, the CRA is not holding it for you — nothing moves until the return is filed. As a general rule the CRA will consider a refund where the return is filed within ten years of the end of that tax year.
- It is the proof of income everyone asks for. Mortgage renewals, business financing, a child's student aid, a sponsorship application — they all want notices of assessment.
What the corporate return does
A corporation has to file a T2 for every tax year, within six months of its fiscal year end — including a year with no activity at all. A nil return is still a return.
- Tax accounts only stay accurate if the years are filed. Loss carryforwards, refundable dividend tax on hand and GRIP are all tracked return by return. Gaps in the chain create balances nobody can rely on.
- Dividend refunds have a deadline of their own. Where a corporation pays a taxable dividend, the dividend refund generally requires the return for that year to be filed within three years of the year end.
- Financing and transactions stop at the file. Lenders, buyers and insurers ask for filed corporate returns and matching financial statements. An unfiled year is the thing that delays a closing.
- The corporation's legal standing is tied to filings too. Ontario corporations file an annual return alongside their tax filings; continued non-filing can put the corporation's registration itself at risk.
- Directors carry personal exposure for some balances. Unremitted payroll source deductions and HST can reach directors personally. Knowing the number is better than guessing at it.
The arithmetic of waiting
Late-filing penalties are calculated on the balance owing, so a late return with nothing owing usually carries no penalty. Where there is a balance, the cost compounds in two directions at once.
Late filing
The general penalty is five per cent of the balance owing, plus one per cent for each full month the return is late. Where the CRA has already charged a late-filing penalty in a recent year and has demanded the return, the rates double and run longer.
Interest
Arrears interest compounds daily on unpaid balances, and on the penalties themselves, at the CRA's prescribed rate. It runs whether or not the return has been filed, which is why filing and paying are worth separating in your head.
Where returns were never filed at all, the Voluntary Disclosures Program may be available — but only where the disclosure comes before the CRA contacts you about it. Once a demand to file or a compliance letter arrives, that door narrows. Whether a situation qualifies depends on its own facts and is worth reviewing early rather than late.
Off-season catch-up
Get caught up before tax season takes the calendar
Between now and the end of January, a multi-year catch-up gets real attention and a realistic timeline. From February onward the same file waits behind everyone else's current-year return.
I take on a limited number of catch-up engagements in the off-season — personal returns, corporate returns, or both together where a corporation and its owner have drifted out of step. Flat fee, quoted before any work starts.
How a catch-up actually runs
Step one
Find out where you stand
With authorization I pull your CRA account and read what is actually outstanding — which years, which balances, whether a demand has been issued. Most people's situation is smaller than they expect.
Step two
Rebuild the missing years
Slips on file with the CRA cover more than you think. For corporations we work from whatever exists — bank statements, a partial set of books — and reconstruct the rest.
Step three
File, then deal with any balance
Filing and paying are two separate problems. Returns go in first; where a balance remains, we address payment arrangements or relief requests with the CRA from there.
Robert Occhiuto, CPA, CA · In-Depth Tax certified
Sole practitioner in Woodbridge, working with owner-managers and incorporated professionals across the GTA. About the practice
This article is general information current as of the date of publication. It is not advice for your particular situation, and rules and rates change. Please speak with me or another qualified advisor before acting on anything here.