Repeated failure to report income penalty

How the penalty works

For a personal return, the CRA can charge both a federal and a provincial or territorial penalty when you fail to report $500 or more on the current return and also failed to report $500 or more on any of the three previous returns. The penalty is the lesser of two amounts: 10% of the unreported amount (the CRA lists this for both the federal and the provincial or territorial penalty), or 50% of the difference between the tax you understated, or credits you overstated, and the tax already withheld on that income.

The second test matters when tax was withheld at source. If most of the tax on a slip was already deducted, the understated tax is small and the penalty is usually smaller than the first test would suggest. Interest on any additional tax is separate.

An illustrative example

Suppose, with round numbers, you forgot a $2,000 interest slip two years ago and the CRA added it in a reassessment. This year you forget a $3,000 side-income payment. Because you missed an amount of $500 or more in an earlier year as well, the repeated-failure penalty can apply to the $3,000. Ten per cent of that is $300 for the federal penalty, and a provincial penalty can apply as well. If the understated tax on it were only $400 and nothing was withheld, half would be $200, and the lesser figure, $200, would be the penalty. These figures are illustrative only; they are not a prediction of what the CRA would assess.

How it differs from nearby penalties

This penalty is about a pattern of omissions rather than a single one. A different penalty applies to false statements made knowingly or through gross negligence; see gross negligence penalty. A late-filing penalty is about timing, and arrears interest is a charge for unpaid tax rather than a penalty for omissions. One reassessment can include several of these at once, so read the explanation on the notice rather than assuming which one applies.

Reducing the risk and responding

Most repeat omissions come from slips that arrive late, accounts that were forgotten, or income that bypasses a slip altogether, such as cash or platform payments. A simple year-end list of every income source, checked against your online CRA account for slips, closes most of those gaps.

If you find an omission before the CRA contacts you, the CRA may grant penalty relief under the Voluntary Disclosures Program. If you have already been assessed, you can dispute it through a notice of objection within the deadline on the notice, or ask for taxpayer relief if circumstances beyond your control were the cause.

What to discuss with your accountant

Bring the reassessment, the original return and the slips or records for the omitted amounts. Ask whether the prior omissions truly meet the $500 threshold, how the penalty was calculated, whether a disclosure is still available for other years, and which process fits your situation. The penalty rules and amounts can change, so confirm them against current CRA guidance.