How to get caught up on back taxes

April 26, 2008 10:40 AM

My parents haven't filed income tax returns for many years. I'm worried that the CCRA is going to come knocking. What's the best approach to getting them "legal" again?

Do they need a tax lawyer? Should they just keep their mouths shut?

All the relevant details I can think of:
- They live in Canada, but they're landed immigrants, not citizens.
- I have no specific reason to be worried (i.e. no letters from the gub'ment or anything) other than they're my parents.
- It's been at least 10 years since they filed, possibly as many as 15 years.
- Dad's 63 and mum's 59.
- Mum receives a T4 from her employer every year. She only works 3 days a week, and she's had deductions at source all along, so I doubt she owes much (if any.)
- Dad is self-employed. He says he hasn't filed because he can't afford it.
- Dad has made anywhere from $15K to $40K a year each year since he last filed.
- They (mostly) own their home. But it's their only significant asset.
- I have an accountant who I trust, but I'm reluctant to ask him about this situation in case it creates a legal obligation for him.

posted by anonymous to law & government (17 comments total)

They definitely need a tax attorney. Ask your accountant for a reference, you don't need to provide the details.
posted by miss tea at 10:46 AM on April 26, 2008

I am sure that others can help with the question, but my first response is this: ask the accountant, but name no names. Just say that it's "a friend". Then there's no legal obligation, surely? And you will get reliable advice, better than any you'll find from strangers on the internet.

Good luck!
posted by different at 10:48 AM on April 26, 2008

With a tax lawyer, you have the protection of lawyer-client confidentiality.

For example, a tax lawyer could approach the CRA and say "I have clients in this situation, and I propose this settlement" and negotiate without revealing their identity. If an accountant tried this, they could be compelled to testify as to the identity of the clients.

If they could pay in full (including penalties), they could just file the returns ASAP, with or without professional help.
posted by winston at 10:53 AM on April 26, 2008

FWIW, if your Dad is self-employed and took in over $35,000 (gross) in a year, then he should have been charging GST too -- as of the beginning of the year in which he earned $35,000. So that's more that he's going to have to pay. (Disclaimer: It's more complicated than that)

I'd be getting professional help, one way or the other -- as in, I'd have an appointment with somebody on Monday.
posted by winston at 11:00 AM on April 26, 2008

(actually, Monday might not be a good idea -- probably the busiest day of the year for tax professionals in Canada. Next week might be better)
posted by winston at 11:01 AM on April 26, 2008

There's also the voluntary disclosure program, whereby you can talk to CRA without penalty. It's on the CRA website.

But a lawyer would be a good first step. Not filing is only illegal if you are illegally evading taxes--sounds like your mum might be okay, but not your dad. IANAL.
posted by dirtynumbangelboy at 11:02 AM on April 26, 2008

This may be implicit in your question, but I would not talk to the accountant -- even without using anyone's name -- without mentioning to your parents, especially your father, that you wanted to make an inquiry on their behalf.
posted by Clyde Mnestra at 11:05 AM on April 26, 2008

A, uh, friend of mine did this for years, and then just started filing one year, without comment or fuss. It's not like murder or something, really, the only problem here is how much you have to do to ease your conscience --- and it's not your conscience to worry about, so maybe you shouldn't?
posted by blacklite at 11:20 AM on April 26, 2008

I also agree that you collaborate with a tax accountant. S/he will probably recommend something like this:

1. Work out how much they owe - at least roughly.
2. Work out how they would prefer to go about paying this off.
3. Send the relevant tax inspector a letter explaining initial calculations from the above steps and enclosing payment for the first installment (at least).

The point of all this is to be seen to have taken the situation in hand and shown that they are willing to make up for the non payment. The pitfalls you are trying to avoid are the launch of an extensive investigation into the minutiae of your parents finances or tendency for the tax authority to invoke penalty charges/worst case scenarios, etc. Tax people spend most of their energy trying to chase non payers and are likely to be relatively lenient on somebody who voluntarily comes back into the fold armed with a cheque and some plausible calculations.
posted by rongorongo at 12:48 PM on April 26, 2008

Ummm... I haven't heard you say that your parents are worried about this situation. Are they? If not, then how about you just forget about it and let them handle it, any way they like? Unless there are circumstances you haven't mentioned (about mental competency) I'll take it they are mature adults and capable of making their own decisions. And living with them.
posted by exphysicist345 at 1:52 PM on April 26, 2008 [1 favorite]

I got about three years behind at one point (long story) so one year I just filed them all at once along with the current one. (In Canada, Quebec.)
posted by loiseau at 2:57 PM on April 26, 2008

Yeah, it seems to me that the hardest part of this whole scenario is: how are they going to pay, and do they even want to? You didn't mention either of those issues so I feel I'm not answering the question, but for me that'd be the most difficult/relevant part.

Many of my acquaintances think I'm a goody-goody, but I don't mess with the government when it comes to money. The "I can't afford it" argument can end up costing you far more in the end. (And believe me I sympathize; I'm self-employed too. Writing those checks hurts.) I know you're aware of this, too, which is why you'd like to get your parents legal again. But really, it's hard enough earning a livelihood for many years without the worry/possibility that in the end it's all going to come crashing down.

For those who advise anon to stay out of their business: I totally get where you're coming from, too. But this is also an issue of either anon's inheritance, or money that he or she might have to help pay in the future. I know, I know, call me a goody-goody again if you wish.
posted by iguanapolitico at 4:03 PM on April 26, 2008

This is affecting your parents' future Canada Pension Plan earnings. Your mom is probably okay -- in fact, CCRA probably owes her money. If she's been straight up with her employer, she's probably contributing at least as much as she needs to. Your dad probably owes. However, it's not as scary as you might think. If he has decent write-offs, he can probably reduce his amount owing to just CPP contributions for many of the years. I mean, he could earn $30k and have enough write offs (vehicle, mortgage, medical, etc) and just owe $1800 for CPP. As for GST, he probably only owes 3% for every year, since he would have probably opted for the Quick Method or had some credits on his business expenses. So, if he earned an average of $30k for 10 years, he might owe $9k in GST -- but you've said that there were many years where he earned less than that and he wouldn't have owed GST till he earned $30k. As for regular income tax, again, if he earned an average of $30k and wrote off enough, he might owe $18k there. So I'm going to guess that he owes around $25k, perhaps $18k, perhaps even less, perhaps more. Since your mom probably has overpaid or broke even over the years, let's say they owe $25k.

It's not all that bad. They could work out a deal through a tax lawyer, I would think. And pay by installment. And the GST might be a non-issue.

The CPP part is a concern. And perhaps you're concerned about supporting them down the road. Your folks are close to retirement age. So talk to your accountant with anonymity and go see a tax lawyer.

IANASpecialist in anything and IANQualified to give advice on anything legal, financial or otherwise important. This is just information and not necessarily right and probably has errors and omissions. Don't sue me, etc. But I do run my own business and do my own taxes, so I plunked some stuff into Quicktax to see what would happen for your folks.
posted by acoutu at 4:33 PM on April 26, 2008

So, if he earned an average of $30k for 10 years, he might owe $9k in GST -- but you've said that there were many years where he earned less than that and he wouldn't have owed GST till he earned $30k

When the OP refers to his/her father's earnings as being between $15K and $40K, I'm reading that as being the net income from Dad's self-employment business (that is, revenue minus expenses).

The GST in question should have been collected based on the amount Dad was paid by customers -- that is, his gross revenue. Presumably he'll get input tax credits for his business spending so the amount due will hopefully be about what you say.

But "he wouldn't have owed GST till he earned $30k" should read "till he grossed $30k." So if he earned that $15k by spending $16k on stuff that he resold for $31k, then he owes GST for that year too.

(Disclaimer: I majored in Theatre Arts)
posted by winston at 6:16 PM on April 26, 2008

Yes, poor word choice. I meant to say "grossed".
posted by acoutu at 7:21 PM on April 26, 2008

I haven't declared all my income in the past; is it too late to correct my tax information?

You may be able to correct your information using the CRA's Voluntary Disclosures Program. The program allows people to come forward, correct their tax information, and avoid being penalized, criminally investigated, and prosecuted.

If you make a full disclosure before we start any compliance action or investigation, you may only have to pay the taxes owing, plus interest. If we come to you first, you could end up paying penalties and fines and even face jail time.

For more information about the Voluntary Disclosures Program, visit www.cra.gc.ca/voluntarydisclosures.

Source: http://www.cra-arc.gc.ca/newsroom/factsheets/2008/jan/fs080121-e.html

A friend of mine was re-assessed for some mis-classified deductions. In their case they argued that the interest owing was onerous and they only needed to pay the principal (taxes) and not the interest. Apparently the tax case workers are pretty sympathetic. Sort of reminds me of that one episode of Corner Gas with "the tax man", not to make light of your parents' situation.
posted by KevCed at 8:59 PM on April 26, 2008

Oops, I didn't see dirtynumbangelboy's comment. My post has a link to the Voluntary Disclosure program he already mentioned.
posted by KevCed at 9:01 PM on April 26, 2008