Income taxes: Don’t wait and file late

This Monday is the deadline for payment of your 2016 personal income taxes.

If you are an employee, self-employed, retired or working part time, then any taxes you owe for the 2016 calendar year are payable to the Receiver General no later than May 1.

There are two important tasks when filing and paying your income taxes.

Any individual who does not file a personal income tax return by this deadline is liable to a penalty of five per cent of the tax unpaid at the time the return was due. Late-filing taxpayers also face further penalties of one per cent of unpaid taxes times the number of months the return is not filed (to a maximum of 12 per cent).

If you file your return on time, but your payment is late, then the CRA will charge interest at five per cent (compounded daily) on any unpaid taxes from May 1 until the date full payment is received. This interest is not deductible and few exceptions are made. Yikes! Who would want to be subject to all these penalties and interest?

If you or your spouse were self employed in 2016, then June 15 is the deadline to file your tax return.

Did you breathe a quick sigh of relief and put all your receipts away till June? Not so fast! Although you can wait until June 15 to actually file your tax return, any taxes you owe are required to be paid by the deadline of May 1.

As in past years, taxpayers owning mutual funds or trust units have had to wait until up to mid April for their tax slips. This year is proving no exception, as many people received their slips this week. This means many individuals must delay filing their tax returns because they have not received all the necessary information.

Some investors are unsure if they should even be receiving slips and whether the tax slips come from their broker or directly from the mutual fund companies. A quick call to your broker or investment advisor can confirm you have all the current tax slips for 2016.

Ups and downs in the stock market were experienced during 2016. Some investors are still surprised when they receive income slips indicating taxable dividends, capital gains and interest earned on their non-registered investments. The reason for these tax slips is that fund managers continually buy and sell stocks and bonds within their funds, and this activity generates earnings. These earnings are distributed to the investors (individual taxpayers) and thus this income is taxed on each investor’s tax return. This means tax slips are issued and mailed to each investor.

As Canadian residents, we are required to report our income from all sources, both inside and outside of Canada. This means income earned each year on investments or property held in foreign jurisdictions (such as the U.S., Mexico or Europe) must also be reported on your Canadian tax return. As well, those investors who own specified foreign property costing more than $100,000 at any time in 2016 must file Form T1135 Foreign Income Verification Statement. The detail of information required to be reported has changed from 2015, so be aware of the new requirements. Taxpayers holding foreign investments (i.e. shares in U.S. companies) in a broker account managed by a Canadian broker or registered securities dealer must still comply with these reporting requirements.

Taxpayers have both federal and provincial taxes to pay. B.C. does not use the same exemption amounts as the federal government. Beware of different calculations for tuition and education credit amounts especially when transferred from a son or daughter. For wage earners, the federal employment credit does not translate into provincial credits. For retirees, the federal pension credit is different than the provincial credit allowed. These are just a few of some of the differences.

Don't forget to review your 2015 Notice of Assessment sent to you by the CRA. It may indicate amounts you can carry forward and deduct in 2016 or future years. This could include capital losses and RRSP contributions carried forward from earlier years. It also shows annual amounts you must repay to your Home Buyer or Life Long Learning plans.

Whatever your situation, file your return before May 1 and avoid the late filing penalties and interest. Any taxes not paid by the deadline will be charged interest that is not deductible. So, get your tax return prepared and filed. Once it is sent to Revenue Canada, you can enjoy the beautiful spring weather. Then we grab those golf clubs, bicycle or running shoes and get outside.

Marion Wahl is a chartered professional accountant. You can contact her at 250-7623362 or by email at marionpwahl@shaw.ca.