Late-filing penalty

How it is calculated

For an individual, the penalty is 5% of the balance owing for the year plus 1% of that balance for each full month the return is late, up to 12 months, so the first-time maximum is 17%. A corporation’s penalty is based on the unpaid tax that was due on the filing deadline, with the same 5% plus 1% structure and a 12-month cap.

The base is tax still owing, so filing late with nothing owing generally does not trigger this penalty. The CRA advises filing on time even if you cannot pay, because the penalty depends on late filing, not only late payment.

An illustrative example

Suppose an Ontario consultant owes an illustrative $10,000 for the year and files three full months late. The penalty is 5% plus 3%, which is 8%, or $800. Interest on the unpaid $10,000 accrues separately from the due date. Had the consultant filed by the deadline and paid later, only interest would have applied, not this penalty.

When the rate rises

A repeated late-filing penalty is 10% of the balance owing plus 2% for each full month late, up to 20 months. For individuals it applies if the CRA charged a late-filing penalty in one of the previous three years and issued a demand to file. The corporate rule is similar: a demand to file under subsection 150(2) and a failure-to-file penalty in any of the three previous tax years.

This is separate from the penalties for unreported income or false statements, and from the instalment penalty, which applies only when instalment interest is above $1,000.

Reducing the cost

File as soon as you can, since each additional full month adds to the penalty. If a serious illness, disaster or CRA error caused the delay, you can ask for taxpayer relief. If returns for earlier years are missing, ask your accountant whether a voluntary disclosure suits the situation.

Bring your assessment notices, the dates each return was filed and any demand letters. Ask what your balance would be if filed today and whether a prior demand puts you in the higher rate.