Late filers: Get your back taxes sorted before year-end

Consider the following: 

The backdrop. Under the Income Tax Act, the normal reassessment period is three years from the date the notice of assessment or reassessment is mailed or received. However, under the taxpayer relief provisions, it is possible to request adjustments for errors or omissions for personal returns for 10 years. 

Tax year 2015 in focus. Tax year 2015 will become statute-barred under the 10-year taxpayer relief provisions after December 31, 2025. That means, for the 2015 tax year, the following opportunities to save tax dollars now and in the future will be lost:

1. Tax refunds owed to you for the 2015 tax year.
2. The opportunity to build RRSP contribution room for tax year 2015, which reduces the potential for retirement income security in the future.
3. Deductions and non-refundable tax credits that have “carry over” legs attached to them, such as moving expenses, medical expenses, charitable donations and political contributions.
4. Refundable tax credits owed such as Canada Child Benefit, GST/HST Credit, Canada Workers Benefit, and refundable medical expense supplement.
5. Unreported losses including capital and non-capital losses will not be available to offset their respective income sources for 2015 or for carry-over purposes. This can significantly increase future taxes payable in some cases.
6. The opportunity to use the lifetime capital gains exemption for dispositions that occurred in 2015. 
7. AMT (Alternative Minimum Tax) carry-forwards from prior years can no longer be applied to 2015.

Spousal returns could be affected. When one spouse fails to file, it means that household income is not properly reported for income-tested provisions. If the spouse who filed on time didn’t estimate their missing spouse’s net income properly, it is possible some of the tax preferences received by spouse who filed on time will have to be repaid in the event of a CRA audit, and/or taxes payable will be increased. In some situations, for example when certain properties are transferred or there are joint financial transactions, spouses may also liable for each other’s tax debts. 

Provincial tax credits have different rules. Not all provisions on the federal T1 return qualify for a 10-year adjustment for errors or omissions. The normal reassessment period for federal returns— three years from the date of the original notice of assessment—is all that is available for these purposes in most provinces. In Quebec that reassessment period is four years.  

Pension income splitting with spouse. Certain elections that can reduce your taxes have different filing rules as well. For example, optimization of pension income splitting or joint elections to do the income splitting on Form T1032 have a three-year window only—that is, three calendar years after the filing due date. In the 2023 tax year for example, which had a filing deadline of April 30, 2024, adjustments can only be made for tax years 2024, 2025 and 2026. Taken another way, by April 30, 2026, adjustments for this provision can only be made for calendar year 2025, 2024, and 2023. 

Beware 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 severe incapacity that kept the senior from applying for the benefits. OAS is income-tested; that is, a clawback of the benefits you are entitled to may occur when net income exceeds certain thresholds for the year. So, filing a tax return is 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 may reconsider an entitlement if you apply within 24 months after the benefit period ends. However, if a false or misleading statement was made, the government has 72 months (six years) to recover this tax debt from you. 
• The CDB, available since July 2025, allows for retroactive payments for up to 24 months if you were eligible during that time, starting in July 2025. Again, the government has a six-year limitation period to recover any overpayments from beneficiaries.

Why late filing is generally a bad idea

It always pays to file a tax return on time for the reasons above. The missed deadlines can cost even more when timelines for other provisions come into play. Overdue taxes owing attract big penalties and interest. There are a number of expensive penalties that can pile up—with compounding interest charges and of course the taxes themselves due—for people who owe money to the CRA and miss filing their returns. These may be deemed one or more of:

• Gross negligence. This is a civil penalty CRA can levy for turning a blind eye to tax filing obligations. It is calculated at 50% of the taxes due. Interest compounded at the prescribed rate plus 4% more can turn the tax balance due into a rapidly snowballing problem. Late filing penalties are of course added on as well.
• Tax evasion. Other punitive penalties that may be possible in the case of deceit include tax evasion, which results in a penalty worth 200% of the taxes owing plus compounding interest plus civil penalties and up to five years in jail.
• Tax fraud. Under Section 380 of the Criminal Code, delinquent tax filers may receive a sentence of up to 14 years in prison. Other consequences include fingerprinting and foreign-travel restrictions.

To pay the least possible when you owe CRA, first have a tax specialist confirm the taxes were assessed correctly by the agency (sometimes they aren’t, due to missing information or certain gray areas in the law). Then pay quickly. 

Bottom line

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

Read more about how to minimize taxes:

• A wish list for Carney’s fall budget
• How the Canada GST/HST tax credit works
• Tax implications of giving your spouse money to invest
• How to set up CRA direct deposit

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

Evelyn Jacks is President of Knowledge Bureau, a world-class financial education institute where readers can take micro-credentials in Financial Literacy, the Fundamentals of Income Tax Preparation, and earn career-enhancing Specialized Credentials, all online.

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