In 2008 I was, for the most part, self employed. I did quite a few speaking engagements that involved travel, hotel, and food expenses, and I assumed that the expense write-offs would have a huge dent in the taxes I’d eventually have to pay at the end of the year.
You know what they say about assumptions.
So I owed a bit of taxes for 2008, no biggie. This past Summer (2009), I was sent a notice from Revenue Canada saying that it was time to make some instalment payments. This was obviously about my taxes from 2008, so I paid them off and continued on with my now full-time employee life.
Today I got a call from Canada Revenue Agency alerting me that I still owed all my taxes for 2008. Say WHAT?! This was quite the distressing news: did a cheque get misplaced, did I imagine making those payments, did the money go to the wrong account (like under my wife’s)…all these things raced through my mind as I raced home.
I reviewed my records and there were the payments that were made right in my bank statements. I called CRA back, confident that I was vindicated! But I wasn’t…and in fact, I actually *hadn’t* paid my 2008 taxes…
Self Employment and Your Tax Schedule
When I was self employed, I *vaguely* remember at some point agreeing to a quarterly tax payment schedule (as opposed to the end of the year like normal). What happened as a result was that CRA looked at what I owed in 2008 for taxes and assumed that I’d probably owe a similar amount in 2009. So last summer they sent an instalment notice saying that I could pay by x date towards my 2009 tax year.
What I did when I saw that was assume it was talking about my 2008 taxes since the amounts were similar (even though it said plainly it was for the 2009 tax year…why would I pay income tax before the year was over?). So all this time I’ve been derelict on my 2008 taxes, but my 2009 tax account has been overflowing!
Luckily, I do have the option to move the income tax I’ve paid in 2009 into my 2008 account, so I’m only out a small amount to cover the accrued interest.
So here’s the takeaways:
Know Your Tax Schedule
If you do agree to a non-yearly tax schedule, understand what that means! Mark it on your calendar, set up reminders, or better yet STAY YEARLY (I really don’t understand the rationale of making early payments…)
Pay Attention to What Tax Year CRA Communications Refer To
CRA has different buckets set up for you as far as taxes go. So it is possible that you owe money for a past year’s bucket and yet have extra stored in a present year’s. If you get a notice from them, make sure you understand what its for and what year its for.
Don’t Assume CRA Staff are Dinks, But Don’t Assume They Tell You Everything
The guy I dealt with at CRA was awesome…he was very patient in trying to explain to me why I still owed money from 2008 even though I had paid it in 2009. With that said, it wasn’t until I called my accountant that I realized I could transfer the money I paid for 2009 taxes to my 2008 taxes. CRA staff are calling you because they need payment, not to give you advice.
Have a Great Accountant You Can Get A Hold Of