Most clients think of a missed tax deadline as an inconvenience. The CRA treats it as a cost, and that cost grows every month. Here is how the main late-filing penalties work, with simple examples you can share with clients who tend to leave things to the last minute.
Personal and corporate income tax returns
If a return is filed late and there is a balance owing, the CRA charges a late-filing penalty of 5% of the balance owing, plus 1% for each full month the return is late, up to 12 months. The same base rule applies to corporations filing a T2.
For repeat late filers the penalty is steeper. If the taxpayer was charged a late-filing penalty in any of the three previous years and received a demand to file, the penalty becomes 10% of the balance owing, plus 2% for each full month late, up to 20 months.
Example
A client owes $10,000 and files four full months late:
- First-time late filer: 5% + (4 × 1%) = 9%, or $900
- Repeat late filer: 10% + (4 × 2%) = 18%, or $1,800
Both amounts are before interest, which is charged separately.
Interest on balances owing
Interest is compounded daily on any unpaid amount, starting the day after the payment due date. The rate is the CRA’s prescribed rate, which can change every three months. Interest also applies to penalties, so a late return with a balance owing gets more expensive every day it waits.
GST/HST returns
A late GST/HST return with net tax owing is charged 1% of the amount owing, plus 0.25% of that amount for each full month late, up to 12 months, plus interest. For businesses filing monthly or quarterly, a small slip can repeat several times a year.
Instalments and payroll
- Instalments: late or missed instalments attract instalment interest. An additional instalment penalty can apply when that interest is more than $1,000 for the year.
- Payroll remittances: late remittances of source deductions carry a graduated penalty that can reach 10% of the late amount, plus interest.
Advice worth repeating to clients
- File on time even if you cannot pay. The late-filing penalty is based on the balance owing, so filing on time avoids it even when the payment comes later. Interest still applies to the unpaid amount.
- Ask about relief when it is warranted. The CRA can cancel or waive penalties and interest when circumstances beyond a taxpayer’s control prevented them from meeting a deadline. Requests must be made within 10 calendar years.
- Start earlier. Most late filings are not about complexity. They happen because documents arrive late. A reminder 30 days out does more than a reminder the day before.
Stop penalties before they start
Tax Alert Pro sends your clients automatic email and SMS reminders before every filing and payment date, so documents come in early and deadlines are not missed. See our 2027 CRA deadlines calendar, then start a free 30-day trial.
This article is general information, not tax advice. Penalty rules and rates can change, so confirm the current rules on canada.ca.
