Filing and paying taxes is something that almost everybody dreads. With the challenge of the pandemic and the new tax changes brought on by government aid, many have found filing taxes to be more complicated this year. This often leads to people wondering if they can defer paying their taxes.
However, when it comes to filing your taxes, there are deadlines that must be followed. And if there is any Canadian organization that should not be trifled with, it is the CRA. Even if you do not owe the Canadian government money you may still face fines, have your return withheld, and be excluded from certain benefits.
With all of that said, there are some smart and effective ways to defer paying your tax without getting in trouble.
Good Ways to Defer Paying Tax
The Canadian government and CRA have provided us with numerous ways to limit the tax we have to pay. By applying some of the tips below, you will be able to avoid paying taxes any time soon.
1) Use an RRSP or RESP to defer taxes now and pay lower taxes later.
2) Sign up for tax deferral incentives offered by the government.1
3) Using an “Estate Freeze” to delay taxes on gains.
For contractors, remember to pay on time but not before. This gives your money time to work for you and keeps you from paying interest. You could set up your payments so that they are yearly which would give your money time to grow.
Following these simple techniques are proven for reducing the amount of tax the people must pay each year. However, there are also detrimental ways to defer paying taxes.
Bad Reasons to Defer Paying Taxes
One of the things we hear all the time when it comes to filing taxes is that people are lazy. This is a poor excuse in the age of the internet. For most employees, the CRA has all your important documents stored. Therefore, using their online tax software (or an associated partner) will take a few clicks, and your taxes will be prepared.
Another reason we hear that people defer paying taxes is due to them being unable to afford it. Here is a little secret, if you cannot afford it now, you will not be able to in the future. The CRA slaps a hefty fee (a % of the balance owing, plus 1% of the balance owing for each full month that your return is late). On top of this, once you have filed and are aware of what you need to pay, interest is compounded daily for every day that payment is late. This can turn a measly sum into crippling debt.
If you cannot pay, there are numerous resources to help you out. Contact the CRA and let them know and they will point you in the right place. Work with an accountant to create relief and manageable payment arrangements. The worst thing you can do is defer your taxes and not say anything about it. Out of sight is not out of mind when it comes to payment and filing.
If you have any questions about this article or business taxes, in general, or you want to make an appointment with an accounting professional at Naicker & Associates, please contact us at (604) 469-9369. We are based in Port Moody, BC.
