First of all, this can happen to ANYONE – falling behind on your taxes can strike people of any age, income, or education level. Somewhere along the way, between life events, they have missed sending various information to a creditor and/or Revenue Canada (or the IRS).
To catch-up I suggest baby steps. My first recommendation, while it sounds easy, is HARD – stop, breathe deeply, think it through, and then do it. The key is to keep moving forward proactively.
Write down the following:
1) the last time that you filed a return, either yourself or someone on your behalf such as a tax preparation service or an accountant
2) the reason(s) for why you didn’t file your taxes. This is an important component, as it might form part of your submission for catching up with the tax department.
3) next, find your last tax return. Hint, it might be in your filing cabinet, the bottom of the stack of papers in the closet, or the back of the kitchen cupboard. The return is probably in the original envelope you stuck it into. Check to see if you also have the “Notice of Assessment” for the tax return.
Organizing your material:
Now for the potentially overwhelming part – find all of the mail you received from the tax department since your last tax return. Hint, if you feel faint, sad, angry or any other overwhelming emotion, stop, breathe deeply, and do the next few steps only looking at who sent you the mail and the dates. Do not read or look at the details yet. I suggest this because the letters can stir negative feelings or give the sense of dread.
Take the mail out of the envelopes and organize the material according to the “tax year”, not by the date on the letter. For example, if you last filed an income tax return for year 2012, it means you missed filing year 2013 in year 2014 (remember we file taxes by April 30th of the following year in most cases and April 15th for US residents before extensions).
Next organize each tax year, by the date on the letter. For example, for the 2012 tax year you received three letters – one on August 1, 2013, another on October 1st, 2013, and the third on January 2, 2014– assemble those three letters into date order for the tax year 2012. Do not mix up the various tax year materials.
Using my example from above of tax year 2012, let’s start getting ready for preparing the missed years 2013, 2014 and 2015.
Write down a list of tax slips and information that you used in 2012. Items can include things such as T-4’s, T-3’s, RRSP contribution receipts, child care receipts, spousal support payments, and charitable donations amongst other items. This list is now your checklist for 2013.
Next, assemble the information for each of the missing years according to your list above. Take time to revisit each year to determine whether anything had changed from the previous year. Such as a change in employers, the kids went to summer camp, started renting out your basement to a tenant, or opened an investment account.
If you have rental or self-employment income, check the schedules in your last return, T776 (rental) T2125 (business), and collect all of the receipts for the rental income that you received and all of the expenses that you incurred during the year. I recommend that you go back to your bank statements and review the deposits to your account. Which deposits were for rental/business purposes and ensure those deposits are accounted for on your list.
For those of you with non-registered investment accounts (not an RRSP, RESP etc.) there is quite a bit of work involved as investment income reporting is complex. Start by finding all of your account statements for each month (or quarter) as issued by your broker (or discount brokerage house). If you do not have the statements, call your broker or advisor and request: a list of all transactions in the year; gain/loss statement for each year; a summary of purchases and sales in each year; and a copy of all tax slips for each year. Be warned, you will have to explain why you need the material as it will take your advisor time to assemble and you want your advisor to be working for you on your behalf. For American citizens, write down the dates for each trip you made to the United States and include the purpose of each trip.
Next sit down and pat yourself on the back. Believe it or not, you are almost ready to catch up and complete your missed tax returns. You will have completed the hardest part, finding the material. Now work your way through each tax year using the tax return for that individual year, one at a time. Please note, if you cannot find the software for past years you might have to go to the Revenue Canada web site and download a T1 General for British Columbia for each year (plus any schedules you require). Alternatively, call a tax professional and they can prepare your taxes for previous years.
If you have fallen behind with your taxes, do not despair. With some time spent on the above items, you will be able to work through it. It will not be easy, but it is achievable. Consider asking a tax professional for assistance as this can be a stressful time, and a guiding hand might make it easier to handle.
About the author
Richard Games CPA, CA has owned businesses since 1996 and is a practicing tax accountant and co-owner of Bradley Jacoby Games Chartered Professional Accountants in Victoria, BC.