A Guide to Canadian Tax Penalties

In this blog post we will go over an in-depth explanation of the tax penalties for missed filings and late filings for (1) individuals, (2) corporations, (3) sales tax, and (4) trusts. If you would like to read more about Canadian tax deadlines, you can refer to our blog post here.

An Overview of CRA Tax Penalties

There are generally three types of penalties you will be charged if you do not file your tax return on the due date or fail to make your tax payments by the due date. These are as follows:

Late Filing Penalty: This is charged because you did not file your return by the deadline. Late filing penalties are the same for individuals, corporations, and trusts.

Late Payment Penalty: This is charged because you missed paying your taxes by the deadline. Late payment penalties are the same for individuals, corporations, and trusts.

Installment Penalty: This is charged if you did not make any tax installment payments. This topic is beyond the scope of this blog post, and we will be covered in a future post.

Individuals CRA Tax Penalties

Filing Deadline: April 30

Tax Payment Deadline: April 30

Late Filing Penalty: 

If you have a tax balance owing, and you do not file your personal tax return by the April 30th deadline, you will be charged a penalty of:

• 5% of the balance owing
• An additional 1% of the balance owing for each month your return is late (up to maximum of 12 months)

Repeat Offender

If you paid a late filing penalty in any of the previous three tax years, your penalty is increased to:

• 10% of the balance owing
• An additional 2% of the balance owing for each month your return is late (up to maximum of 20 months)

Late Payment Penalty: 

If you do not pay your tax balance owing by the due date, you will be charged interest. Even if your return was filed on time, if you did not make your tax payment on time, interest will be charged. The interest charged is as follows:

• Interest is charged and compounded daily based on the CRA’s prescribed rated which are detailed here.

Example

John owes $5,000 in taxes for 2023 and files his tax return 3 months late. He fails to pay the amount owing until 4 months after the due date. 

Late Filing Penalty:

• Penalty: 5% of $5,000 = $250 (initial penalty)
• Additional Penalty: 1% per month for 3 months = 1% × $5,000 × 3 = $150
• Total Late Filing Penalty: $250 + $150 = $400

Late Payment Penalty:

• Let’s assume CRA’s interest rate is 6% annually, or 0.0164% daily.
• Interest: $5,000 × 0.0164% × 120 days (4 months) = $98.40
  

Corporations CRA Tax Penalties

Filing Deadline: 6 months after year end

Tax Payment Deadline: 3 months after year end

Late Filing Penalty: 

If you have a tax balance owing, and you do not file your corporate tax return by the 6 months deadline, you will be charged a penalty of:

• 5% of the balance owing
• An additional 1% of the balance owing for each month your return is late (up to maximum of 12 months)

Repeat Offender

If you paid a late filing penalty in any of the previous three tax years, your penalty is increased to:

• 10% of the balance owing
• An additional 2% of the balance owing for each month your return is late (up to maximum of 20 months)

Late Payment Penalty: 

If you do not pay your tax balance owing by the due date, you will be charged interest. Even if your return was filed on time, if you did not make your tax payment on time, interest will be charged. The interest charged is as follows:

• Interest is charged and compounded daily based on the CRA’s prescribed rated which are detailed here.

Example

ACME Inc. owes $30,000 in corporate taxes for the fiscal year and files its tax return 5 months late. It also fails to pay the amount until 3 months after the due date

Late Filing Penalty:

• Penalty: 5% of $30,000 = $1,500 (initial penalty)
• Additional Penalty: 1% per month for 5 months = 1% × $30,000 × 5 = $1,500
• Total Late Filing Penalty: $1,500 + $1,500 = $3,000

Late Payment Penalty:

• Let’s assume CRA’s interest rate is 6% annually, or 0.0164% daily.
• Interest: $30,000 × 0.0164% × 90 days (3 months) = $442.80

Trusts CRA Tax Penalties

Filing Deadline: 90 days after year end

Tax Payment Deadline: 90 days months after year end

Late Filing Penalty: 

If you have a tax balance owing, and you do not file your corporate tax return by the 90-day deadline, you will be charged a penalty of:

• 5% of the balance owing
• An additional 1% of the balance owing for each month your return is late (up to maximum of 12 months)

Repeat Offender

If you paid a late filing penalty in any of the previous three tax years, your penalty is increased to:

• 10% of the balance owing
• An additional 2% of the balance owing for each month your return is late (up to maximum of 20 months)

Late Payment Penalty: 

If you do not pay your tax balance owing by the due date, you will be charged interest. Even if your return was filed on time, if you did not make your tax payment on time, interest will be charged. The interest charged is as follows:

• Interest is charged and compounded daily based on the CRA’s prescribed rated which are detailed here.

If there is no balance due: 

• $25 a day for each day the return is late, from a minimum of $100 to a maximum of $2,500. 

Case Study

XYZ Trust owes $15,000 in taxes and files its return 4 months late. The trust fails to pay the amount until 2 months after the due date.

Late Filing Penalty:

• Penalty: 5% of $15,000 = $750 (initial penalty)
• Additional Penalty: 1% per month for 4 months = 1% × $15,000 × 4 = $600
• Total Late Filing Penalty: $750 + $600 = $1,350

Late Payment Penalty:

• Let’s assume CRA’s interest rate is 6% annually, or 0.0164% daily.
• Interest: $15,000 × 0.0164% × 60 days (2 months) = $147.60

GST/HST CRA Tax Penalties

Filing Deadline: 1 month (monthly filer) or 3 months (annual filer)

Tax Payment Deadline: 1 month (monthly filer) or 3 months (annual filer)

Late Filing Penalty: 

If you have a tax balance owing, and you do not file your sales tax return by the deadline, you will be charged a penalty of:

• 1% of the balance owing
• An additional 25% of the 1% above for each month your return is late (up to maximum of 12 months)

Late Payment Penalty: 

If you do not pay your GST/HST tax owing by the deadline, interest will start to accrue the day after the payment due date. The interest rate compounds daily, and CRA sets this rate quarterly.

Case Study

ABC Inc. owes $20,000 in GST/HST for the last quarter and files its return 6 months late. 

Late Filing Penalty:

• 1% of $20,000 = $200
• 25% of $200 × 6 months = $300
• Total Late Filing Penalty: $200 + $300 = $500

Late Payment Interest:

• Let’s assume CRA’s interest rate is 6% annually, or 0.0164% daily.
• Interest: $20,000 × 0.0164% × 180 days = $590.40

Request to waive CRA penalties and interest

Individuals and businesses can apply for relief from interest and penalties under certain circumstances, using the Taxpayer Relief Program offered by the CRA. 

The CRA has the discretion to waive or cancel interest and penalties if specific criteria are met. Below are two of the primary circumstances where interest and late filing penalties may be waived:

1. Extraordinary Circumstances

• Natural or Human-Made Disasters: If a taxpayer is affected by events like floods, wildfires, or other natural disasters, the CRA may waive interest and penalties.
• Serious Illness or Accident: If the taxpayer or a close family member is seriously ill or involved in a serious accident during the filing or payment period, the CRA may provide relief.
• Death in the Family: The death of the taxpayer or a close family member around the tax deadline can be grounds for interest or penalty relief.

2. Financial Hardship

• Inability to Pay Due to Financial Hardship: If paying the interest or penalties would cause undue financial hardship, the CRA may grant relief. This applies if the taxpayer is unable to make payments due to unemployment, significant financial distress, or low income.
• Bankruptcy: Taxpayers undergoing bankruptcy may request relief for penalties and interest.

How to Apply for the CRA’s Interest or Penalty Relief

Taxpayers can apply for penalty and interest relief by completing and submitting Form RC4288, “Request for Taxpayer Relief – Cancel or Waive Penalties or Interest.”

The request must be made within 10 calendar years from the end of the tax year in which the penalties or interest were charged. For example, for a tax issue in 2014, the taxpayer has until the end of 2024 to apply for relief.

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The accounting and tax information provided in this post does not constitute advice and is meant to be for general information purposes only. The information is current as at the date of this post and does not reflect any changes in accounting and/or tax legislation thereafter. Moreover, the information has been prepared without considering your company or personal financial/tax circumstances and/or objectives.