What to Do When your Tax Obligations are Overdue

Related: The Importance of Staying on top of your Tax Obligations

Small business owners, in addition to having to be involved in all aspects of their business, have the responsibility of being aware of, and complying with, a variety of tax obligations.  For some the accumulation of government notices, assessments, requests for information etc., can be somewhat overwhelming, resulting in stress and avoidance.  While ignoring the problem, hoping that it will go away, may seem like an attractive option, it is important to note that the revenue agencies never forget (even more so now that most processes are automated).  They are also happy to take extreme measures to collect upon what they perceive to be unpaid debts in the short term (Freeze your bank accounts.or garnish your wages) and ask questions later.

Revenue agencies are not always complete ogres and can actually be reasonable, however they do require communication and timelines.  The best course of action (perhaps somewhat obviously) is to address a notice of re-assessment, statement of balance owing or request for information as soon as it arises.  Unfortunately, many business owners are so busy with the day to day aspects of running their business, that it is easy to put the Revenue Canada (or Revenue Quebec) communications aside.  It is only when the letters start to increase in frequency and intensity that most delinquent business owners start to take notice.

Rather than wait for the threatening letter from CRA or RQ, that gives you 30 days to respond or extreme measures will be taken, you should call the revenue agency as soon as possible and advise them that you are in the process of compiling the information required.  A phone number is usually included on the letter along with a contact name.  If not, the Revenue Canada and Quebec websites have a “contact us” section.  It is important to have a timeline as to when you think you will be able to provide the information requested and communicate this to them as clearly as possible.  It can also be very helpful to get a specific contact name, if you don’t already have one, as this makes future communications much easier.  You can then call the contact periodically and advise them of the status of your efforts.  Both Revenue Canada and Revenue Quebec are amenable to payment arrangements as well, provided that you can demonstrate that you do not have the funds available to pay amounts due all at once.  Also, if you register for online services with CRA and RQ, it can simplify the process of keeping track of notices and submitting documentation

Small business typically have the following obligations:

• Sales taxes (GST, HST, QST),

• Personal tax returns including your statement of business and/or professional activities,

• Payroll taxes (deductions at source filings with CRA and Revenue Quebec, CSST)

• Corporations are also required to file corporate taxes (T2s and CO-17 for Quebec) and dividend declarations (T5 and RL3).

Related:Tax filings for a typical small business

Non compliance with your tax obligations suggests that your accounting system and processes are deficient (or non existent), a situation that is not uncommon for many small business owners and self employed individuals.  Receiving a letter of delinquency from CRA or RQ can be a good time to review your accounting system, and determine the best way to ensure that , in addition to filing the overdue returns, you are able to meet your obligations on a timely basis in the future.  There are numerous accounting software available to Canadians, both for the desktop and in the cloud, that greatly simplify the process.  Additionally, you can find a payroll service that will take care of your monthly and annual payroll filings.  GST-HST-QST filing periods can be changed so that your filing is annual instead of quarterly, which requires less maintenance of your accounting system (although it is important to ensure that you have the funds to cover the tax obligations).  Finally it is generally a good idea, particularly in the situation where you are delinquent, to find an accountant who can assess your situation and implement changes, as well as provide useful guidance on how to ensure ongoing compliance.