Filing income tax returns late may result in penalties and interest from the Canada Revenue Agency (CRA). This guide covers CRA late-filing penalties, including the penalty and interest rate, consequences for late tax filers, repeat offences, and penalty relief.
Deadline for Filing Tax Returns and Extension
Most individuals are required to file their tax returns by April 30. Self-employed taxpayers have until June 15 to file their returns, but any balance owing is still due by April 30. If a tax deadline falls on a weekend or holiday, a return will be considered on time as long as the CRA receives it or it is postmarked by the next business day.
CRA Late-Filing Penalty and Interest Rates
The CRA may charge taxpayers a late-filing penalty if:
- the taxpayer files their return past the deadline and has taxes owing.
- the taxpayer fails to report an amount on their tax return.
- the taxpayer makes a false statement or omission on their return, either knowingly or as a result of gross negligence.
The penalty is 5% of the unpaid taxes for that year, plus an additional 1% for each full month the return is filed after the due date, up to a maximum of 12 months. Additionally, the CRA charges compound daily interest starting from the day after the payment due date. The interest rate is subject to change every three months, based on the prescribed rates set by the CRA.
Impact of Late-Filings on Tax Refunds
Filing late can delay a taxpayer’s refund and benefit payments (such as the Canada Child Benefit and GST/HST credits), as the CRA may withhold these payments until all overdue returns are filed.
Penalties for Repeat Late Tax Filers
The CRA’s approach to habitual non-compliance is strict. If a taxpayer was already charged a late-filing penalty in any of the three previous tax years and then files late again after the CRA issues a formal demand to file, they will face a repeat late-filing penalty. In such cases, the penalty increases to 10% of the balance owing, plus an additional 2% for each full month the return remains outstanding, up to a maximum of 20 months.
The CRA closely monitors each taxpayer’s filing compliance history. If a taxpayer continuously fails to file despite the CRA’s efforts, it can lead to prosecution and other legal action.
It is essential to keep track of tax filing deadlines, since filing a return on time helps a taxpayer to avoid late-filing penalties.The CRA will charge interest on any unpaid amount, but it will not apply a late-filing penalty as long as the return is filed on time, even if payment is delayed.
Below are some strategies to help taxpayers file their tax return on time:
- Mark key tax deadlines on the calendar.
- Gather necessary documents early.
- File the tax return on time even if the full balance cannot be paid by the deadline.
- Seek professional advice for complicated tax situations.
Penalty Relief for Late and Repeat Filings
The CRA may cancel or waive penalties and interest if a taxpayer was unable to meet their tax obligations due to circumstances beyond their control (for example, a natural disaster or severe financial hardship). Relief is not guaranteed. The CRA will consider several factors, including the taxpayer’s past compliance history, whether the taxpayer knowingly allowed a tax balance to accumulate, whether reasonable care was taken to meet obligations, and how promptly the issue was addressed once it came to light. Any request for relief must be made within 10 years from the end of the relevant tax year. Taxpayers are generally responsible for the actions of their representatives, though in some cases the CRA may grant relief for certain third-party errors or delays.
Other ways to reduce penalties include filing a formal objection, making a voluntary disclosure, amending a return, or submitting a late or revised election.
Large penalties can be overwhelming for taxpayers. Contact Taxpayer Law for expert legal guidance on how to navigate late-filing penalty issues.
We appreciate the contribution of Sreyoshi Monoj in the development of this article.
