Late Filers: Settle Your Back Taxes Before Year End – MoneySense

The background. According to the Income Tax Act, the normal period for re-filing is three years from the date on which the assessment notice or re-assessment is sent or received. However, under the tax exemption provisions, it is possible to request corrections for errors or omissions on personal returns for ten years.

Tax year 2015 in pictures. Tax year 2015 expires after December 31, 2025 under the ten-year tax exemption provisions. This means that for the 2015 tax year the following opportunities to save tax money now and in the future will be lost:

1. Tax refund you owe for the 2015 tax year.
2. The ability to create RRSP contribution room for tax year 2015, reducing options for retirement income security in the future.
3. Deductions and non-refundable tax credits with carry-over legs, such as moving expenses, medical expenses, charitable donations and political contributions.
4. Refundable tax credits such as Canada Child Benefit, GST/HST Credit, Canada Workers Benefit and refundable medical expense supplements.
5. Unreported losses, including capital and non-capital losses, will not be available to offset their respective 2015 income sources or for carryforward purposes. In some cases, this can significantly increase future taxes to be paid.
6. The possibility of using the lifetime exemption from capital gains for disposals that took place in 2015.
7. AMT (Alternative Minimum Tax) carryovers from previous years can no longer be applied to 2015.

Spouses’ returns may be affected. If one of the spouses does not file a tax return, this means that the family income is not correctly reported for means-tested benefits. If the timely filing spouse has not properly estimated the missing spouse’s net income, some of the tax benefits received by the timely filing spouse may have to be refunded in the event of a CRA audit, and/or the taxes payable will be increased. In some situationsFor example, when certain property is transferred or there are joint financial transactions, spouses may also be liable for each other’s tax debts.

Different rules apply to provincial tax credits. Not all provisions on the federal T1 return are eligible for a ten-year adjustment for errors or omissions. The normal reassessment period for federal returns – three years from the date of the original tax notice – is the only one available for these purposes in most provinces. In Quebec, that reassessment period is four years.

Share retirement income with spouse. Certain elections that could lower your taxes also have different filing rules. Consider, for example, optimization of pension income distribution or joint elections to determine income distribution Form T1032 have a period of only three years, i.e. three calendar years after the due date of the filing. For example, in tax year 2023, which had a filing deadline of April 30, 2024, adjustments can only be made for tax years 2024, 2025, and 2026. Stated differently, by April 30, 2026, adjustments for this provision can only be made for calendar years 2025, 2024, and 2023.

Beware of the loss of social benefits. It is only possible to go back 11 months to claim missed Old Age Security (OAS) benefits that were not deferred, unless there was a serious disability that prevented the senior from claiming the benefit. OAS is means-tested; that is, a clawback of the benefits you are entitled to may occur when net income exceeds certain thresholds for the year. Submitting a tax return is therefore necessary.

Other social benefits include the new Canada Dental Care Plan (CDCP) and the Canada Disability Benefit (CDB).

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• Under the CDCP, the CRA can reconsider an entitlement if you file within 24 months of the end of the benefit period. However, if a false or misleading statement has been made, the government has 72 months (six years) to recover this tax debt from you.
• The CDB, available since July 2025, allows retroactive payments for up to 24 months if you were eligible during that period, starting in July 2025. Again, the government has a six-year limitation period to recover any overpayments from beneficiaries.

Why filing late is generally a bad idea

For the above reasons, it always pays to file a tax return on time. The missed deadlines can cost even more when timelines for other benefits come into play. Back taxes that are owed carry high penalties and interest. There are some expensive penalties that can pile up – with even more interest charges and of course the taxes themselves due – for people who owe money to the CRA and haven’t filed their returns. These can be considered one or more of:

• Gross negligence. This is a civil penalty that CRA can impose for ignoring tax reporting obligations. It is calculated at 50% of the taxes due. Interest compounded at the prescribed rate plus 4% more can make the tax balance due a quick snowball problem. Of course, this also includes penalties for late filing.
• Tax evasion. Other punitive penalties possible in the case of cheating include tax evasion, which results in a fine worth 200% of the taxes owed plus compound interest plus civil penalties and up to five years in prison.
• Tax fraud. Under Article 380 of the Criminal Code, overdue tax returns can result in a prison sentence of up to 14 years. Other consequences include fingerprinting and restrictions on travel abroad.

To minimize the amount you owe CRA, first have a tax specialist confirm that the taxes have been assessed correctly by the agency (sometimes this is not the case due to missing information or certain gray areas in the law). Then pay quickly.

In short

Always keep in mind that access to any tax preferences and benefits starts with filing a tax return. Plan to catch up well before the end of 2025. File missed tax returns or request adjustments for errors or omissions. You might even have a little financial freedom coming your way in 2026, compliments of CRA.

Read more about how to minimize taxes:

About Evelyn Jacks, RWM, MFA, MFA-P, FDFS

Evelyn Jacks is president of Knowledge Bureau, a world-class financial education institute where readers can pursue micro-credentials in financial literacy, learn the basics of income tax preparation, and earn career-enhancing specialized credentials, all online.