For many accountants, me included, June is like a “mini” tax season. Not only are all the corporate December 31 year ends due by June 30, but also those who are self-employed need to have their taxes filed by June 15. Additionally, for my clients, those who are US citizens and living north of 49 have that automatic extension to June 15 so need to get their completed 1040’s to the IRS. Whew!
This past tax season found many people owing more than they thought. A lot of this was the haziness around all the various grants and loans – what was taxable and what wasn’t. For those who took a subsidy but weren’t entitled, CRA is now clawing it back. To say it mildly – this suck! If you have a large amount owing, you may find yourself having to repay it. The first thing is to call CRA and make payment arrangements. Don’t let it sit. Don’t let them come to you. They will be mean about it. Find something you can afford and get that monkey off your back.
However, one problem that owing big this year may create is the installment requirement. If you had an anomaly where you owed in the last couple of years, and if the amount was greater than $3000 and is greater than that this year, you may find you get a little note on your Notice of Assessment (“NOA”) telling you that you have a requirement to pre-pay the next year’s taxes. This is very individual and won’t apply to everyone, but be mindful of what that NOA says. And here’s how installments work.
If you have a situation where you have an installment requirement, and you pay the installments, and you owe next year, the installments will be put toward the taxes owing.
If you have a situation where you have an installment requirement and you don’t pay the installments, and you owe next year, you will get charged interest. This is important to know because this interest is not deductible.
If you don’t have installment requirements but you owe, normally you would get charged interest on the balance owing after April 30. If the balance, however, came about because of COVID19 benefits, you may see this note on the “NOA”: Because you received COVID-related benefits in 2020 and your taxable income was $75,000 or less, we are providing flexibility for paying the balance you owe on your 2020 tax return. The interest that would normally be charged starting on May 1, 2021, will be waived until April 30, 2022. We will start charging interest on any unpaid balance from your 2020 return on May 1, 2022. We are still charging interest on any unpaid balances from previous years.
This doesn’t mean you don’t owe. It means do everything humanly possible to get that balance paid down. Divide the amount by 12 and make a DIY installment plan.
In short: the government gets theirs. Don’t bury your head in the sand and ignore the envelopes and calls. I know they are scary, but dealing with it gets you way better results than ignoring it.
And if you would like me to open up all those little brown envelopes for you, because it really is too scary, send them along with a box of decent chocolate and I’d be happy to do so! Happy summer.