10 More Days Left to File Your 2010 Income Tax Return

There are about 10 more days left to file your Canadian tax return, if you owe any tax to CRA for tax year 2010.

If you don’t owe any tax and expecting a refund, you do not need to worry. CRA is more than willing to keep your refund, until you get the time to claim it.

What are the consequence of not filing your 2010 tax return by the tax filing deadline, which falls this year on May 2nd?

There are two types of late filing fees. One is the late-filing penalty and the other one is interest on the balance owning starting May 3rd, 2011.

Late filing penalty – If this the first year you are filing late and cannot remit the taxes that you owe, your late filing penalty is 5% of your 2010 balance owning. For example, if you owe $5,000 is taxes, your late filing penalty will be $250.

Your late filing penalty will be 10% if in the previous three years, you also have filed your tax return late and you owed taxes. For example, if you filed your taxes late in 2008 and owed taxes and CRA fined you for late filing and this year(2010) you are in the same situation, your late filing penalty will be $500 for the same example above.

Late filing interest – Late filing penalty fees is a fixed percentage of the taxes you owed. Now, if you owed taxes and have not filed your tax return by May 2nd, the interest clock will start ticking from May 3rd for the balance you owed. If this is your first year in late filing, the interest CRA will charge is 1% of your outstanding tax for each full month your return is late to a maximum of 12 months. If you owe $5,000 in (2010) taxes your interest will be $50 for each month to a maximum of $600. So, if you fail to file your tax return until May 3rd 2012, you will pay a combined late and interest fee of $850 for being late a year to file your tax return.

But if you are a habitual late filer and filed tax return late in any of the previous three tax years, you will be charged 2% interest for the 2010 tax balance each month you are late to a maximum of 20 months. So, you could end up paying $2,000 in interest if you fail to file your 2010 tax return in the next 20 months.

These numbers add up to a big tax bill over time, if you are not careful to pay your taxes on time.

There is one exception to the above rule, where you can be given an extension to file your 2010 tax return late, and CRA will not charge you late filing penalty and interest. You will need to complete form RC4288 and request for an extension, providing a circumstances beyond your control. If you get approved, you can take it easy to file your 2010 tax return.

Consult your tax advisor to avoid penalty and interest on your tax bill.