In Canada, you need to be sure of two things: it’s cold in the winter, and when April arrives and the snow melts, you’ll have to do your taxes. Then what happens if you do not pay your taxes? What if you have no income to report? What if you earn an income, but do not report it to the Canada Revenue Agency? The fact of not paying taxes carries with it consequences of its own.
In fact, paying taxes on a portion of your income is an important part of your financial health. Not only do you contribute to your country, what all Canadians should do, but keep your taxes up to date also demonstrates your financial stability to anyone who wants to look at it. On the other hand, many potential homeowners want to know the following: Is it possible to get a mortgage despite not having paid its annual tax contributions?
In this article, we will provide you with information about the consequences of not paying your taxes, whether because you are self-employed and you are not sure how to do it, you forgot to pay them. pay or just avoid paying them. Then we’ll see how not paying taxes will affect your ability to get a mortgage.
How to make taxes when you’re self-employed
Nowadays, it is common to be self-employed, at the head of one’s own small business or freelancer. Some even choose to keep their regular job and earn extra income aside. However, this is a common situation where people forget or do not understand how to report their extra income, or simply avoid paying taxes. Before living with the consequences of owing money to the CRA, we have a little piece of advice for the self-employed trying to pay their taxes.
If you have a regular 9-5 job in Canada, your taxes will be paid directly from your bi-weekly paychecks. As soon as you are hired by a company, your employer should report your employment to the CRA, which will then subtract a percentage of each paycheck based on what you do. As you approach taxes, you should receive a T4 income slip, which you will then use to file your taxes. However, if you are self-employed, you will not have a T4 slip to submit. This is where some people make the mistake of not doing their taxes. Even if they wanted to, they might not know how to declare their income. Not declaring your income, whatever it may be, could put you in hot water. So, if you are self-employed, you should follow the following steps:
Keep track of your money and set aside for tax purposes
Remember that at some point, the CRA will be aware of the income you make and you will have to pay taxes. When you make money that is not automatically taxed, it can be tempting to spend it unnecessarily without thinking about the consequences. However, if you do not declare your income for a long time and the CRA catches up with you, you may have to repay a heavy kernel or worse. So, the first thing you should do is make sure that you have set aside about 15-30% (25% is recommended) of your earnings in an account specifically for tax purposes.
Keep your receipts and think about the expenses you can deduct
If you are self-employed or freelancer, there may be expenses that you can use as tax deductions to receive a better tax return. If you need to take public transit frequently to workplaces, this could be deducted. The CRA guidelines state that business expenses must be reasonable. Therefore, it is recommended that an independent taxpayer keep all expense receipts for the business for at least six years
Get an invoice for each payment and keep all the bills for at least six years
When you start making money from self-employment, it’s important that you keep track of all the payments you receive. The best way is to create an invoice for the individual or company you are dealing with. A bill acts as a kind of salary. You will send it to your employer, it will detail the work you have done, how much money you have paid and where the money comes from. That way you will be able to keep track of all the income you have to report to the CRA in the next fiscal year.
Do your taxes once a year
Just like for a regular job, you should do your taxes as a self-employed person once a year, before the April 30 deadline. As mentioned above, being self-employed means that a percentage of your pay check will not be automatically remitted directly to the CRA. For this reason, you will not have a T4 slip to submit during taxes. Instead, you will need to complete Form T2125 – Statement of Activities or Business Activities, a statement of your company’s income in the last year. If some of your expenses may be deductible, you can also indicate them on the form.
If you make more than $ 30,000 a year, you have to pay GST/HST
If your self-employment currently generates less than $ 30,000 a year, the CRA will consider you a “small business” and you will not need to register for a GST (Goods and Services Tax) or HST ( harmonized sales tax). However, if your annual income exceeds $ 30,000, you will need to sign up for an account on the CRA website. If you have a GST or HST number, you can start collecting these taxes from the companies that pay you. Note that the HST applies only to certain provinces.
What are the consequences of not paying your taxes in Canada?
Know that by law, you are required to pay taxes on any income you generate from a business, whether your own or that of another. If you know that you owe taxes to the CRA, but you do not pay them, do not file a tax return, or lie on the amount you did, it can be considered tax evasion. In fact, depending on what you owe, when the CRA finally catches up with you, fines can range from $ 1,000 to $ 25,000 and up to one year in jail. You can be sued and have a payroll seizure, even a seizure of your property, such as your home (if you own), your car or other property, until you have paid them back in full. Your account could even be sold to a collection agency, damaging your credit and making it more difficult for you to access loans in the future.
Will my taxes due affect my ability to obtain or maintain a mortgage?
The answer is “yes”, depending on what you really need. Know that some debts can be good. For example, the debt you carry on credit cards, loans and other credit products if handled properly and responsibly (paying your bills on time and in full) can actually be good for your overall credit health. However, like any other badly managed debt, your unpaid taxes will certainly overwhelm you in more than one way. Not only will being late on your taxes lead to penalties and interest charges, but not paying them for years will cost you a substantial fine or even jail time. So, if your situation looks like this scenario, it is understandable that many lenders do not want to approve you for a mortgage or renew your existing loan. Banks, other traditional financial institutions and accredited mortgage brokers, in particular, will have much stricter lending guidelines than some private lenders. If they see that you owe an unreasonable amount of taxes, you will find that your situation is difficult to convince. Yes, some private lenders allow you to borrow if you have had debt problems in the past, or a low credit rating. Again, the less they are assured of your ability to pay them back, the less likely you are to lend to any lender, private or otherwise. If you can find a private lender to give you a mortgage, your interest rates will be extremely high, and if you already owe too much money to the CRA, it would not be a good idea to increase your debt.
If I pay the taxes I owe, will I be approved for a mortgage?
If you owe a bit of taxes because of some unforeseen circumstances, but you intend to pay them quickly, you will have less trouble getting a mortgage than someone who deliberately avoided paying taxes for a long time. However, if you owe a lot of taxes, even if you are paying them back, it may be difficult to get a mortgage (or a mortgage renewal) from some traditional lenders, such as banks, because of their loan standards.
If you do not already have a mortgage and want to get one, your best option would be to pay your entire tax debt, then wait until you’ve saved the money you paid back. Once you are on the right track, lenders will want to help you with your financial situation and you will find it easier to get the mortgage you want.