You are responsible for knowing what's in your return
The April 30 tax filing deadline is next Wednesday, and any taxes owing for 2007 must be paid by then. If you file late, there is an automatic 5% penalty on the amount of tax that was unpaid at the time your return was due, plus an additional 1% per month penalty on the amount due for each month the return is late, up to a maximum of 12%.
If you owe money, you will also be subject to arrears interest. The interest, which is not tax deductible, is charged at the Canada Revenue Agency's prescribed interest rate, which now sits at 8%, compounded daily.
Don't have time to complete your return yourself ? You can always take it to a professional tax preparer or accountant. But you are ultimately still responsible for knowing what's in your return.
That was the message in a tax case decided last month involving David Paul.
Mr. Paul went to the Tax Court seeking relief from penalties assessed by the CRA for his repeated failure to report income on his tax returns. The Income Tax Act states that anyone who fails to report income in a particular year and has also failed to report an amount of income in any of the three preceding taxation years, is liable to pay a penalty equal to 10% of the amount not reported.
Mr. Paul conceded that he failed to include certain amounts of employment income and RRSP withdrawals in his 2000, 2002 and 2005 tax returns. He testified that in those years he had multiple employers and various T4 slips to keep track of.
He wasn't very organized and each year turned over all his tax information to his accountant to prepare his returns. Mr. Paul had such confidence in his accountant's ability that he simply assumed that the returns were correct and signed them without ever reviewing the details of what was reported. He also assumed that if he did happen to "omit" a T4 slip or RRSP withdrawal, these amounts would simply be reported to the CRA and his return automatically corrected by the tax authorities.
The judge found that while Mr. Paul may not have intended to deceive with his manner of reporting, the amounts he omitted were quite significant in relation to his total reported income. For example, in 2005, his unreported employment income was 44% of his total income reported for that year, while his unreported RRSP withdrawals were about 65% of his income.
As a result, the judge found that Mr. Paul demonstrated "a lack of care" and upheld the penalties assessed.
So, before filing this year, take an extra moment to quickly review your return, especially if it was prepared by a third party.