CRA & Revenu Québec

The Penalties for Late Tax Filing

The Canada Revenue Agency expects  individual taxpayers to submit their income tax returns by April 30 of every year, or the following business day if that date falls on a weekend or holiday. To ensure people comply with this expectation, the agency assesses a range of penalties and fines.

The Penalty for Filing your income taxes late?

Filing your taxes late when you have earned a refund or don’t owe any further tax will not result in any fees or penalties. However, if you owe money and file late, the CRA charges you a penalty on the taxes owed equal to five percent plus an additional percent for each month late up to 12 months.

Taxes owed to the CRA are due the day your tax return is due for individuals, April 30. If you cannot pay the full amount, the CRA will accept late payments but charges compound daily interest on all amounts due.

If you owe taxes for several different years, all of your payments are credited toward your oldest debts.

For example, if you owe the CRA $10,000 and you file your tax return 5 months late, the CRA assesses a 10 percent penalty. This increases your tax bill to $11,000.

Penalties for Small Business Owners filing taxes late

As a small business owner, you may be required to file additional returns, such as those for payroll and GST/HST remittances and withholdings. You also have a longer filing time for your self-employed income tax return, if you are self-employed (unincorporated business) you have until June 15th of each year to file your tax return, but if you end up with an amount owing, it is due on April 30th, at which time, the penalties and interests start accumulating.

Failure to meet the CRA’s payroll obligations results in penalties and interest; there are several types of penalties for payroll accounts. Failure to deduct can result in a penalty of 10% for the first failure, and will go up to 20% with any addition failures.

Late filing or non-payment penalties start at 3% and will go up to 20%; as you can see, the CRA takes the calculation, withholding and submission of payroll source deductions very seriously, and you should as well; these deductions directly impact those employees.

As an employer, you are also required to remit information returns to the CRA regarding your employees each year. Filing these late incurs a $10 per day penalty if you have less than 50 returns, and significantly higher penalties if you have more employees.

If you collect GST/HST, penalties also apply for filing late. To calculate the fee for filing your GST/HST taxes late, the CRA uses the formulate A + (B x C).

In this formula, A is 1 percent of the amount you owe, B is 25 percent of A, and C is the number of months the return is late.

For example, if you owe $1,000 in GST/HST and you submit your payment three months late, you use the formula $10 + ($2.50 x 3). Your penalty is $17.50.

Interest Relief for 2020 Income Taxes Owing

For income taxes owing for 2020 there could be some relief from interest accruing on those taxes you owe, if you struggled to pay them on time (April 30).

The criteria is that your earned income from all sources in 2020 could not exceed $75,000, and you must have been in receipt of one of the COVID-19 emergency or recovery benefits in 2020.  The final requirement is that you have filed your 2020 tax return.

If you meet all of those criteria, then you will qualify for interest relief on taxes owed for 2020 only, until April 30, 2022.

If you don’t qualify for the above but are struggling to pay outstanding taxes owing, review the options available to you as part of the the Taxpayer relief provisions.

False Statements and Tax Evasion

If the CRA determines that you have knowingly made false statements on your tax return, you would be charged a penalty of at least $100 or 50 percent of your unpaid tax or falsely claimed credits.

Additionally, the CRA has a number of alternative ways to reassess tax returns. If the agency notices that your lifestyle is grossly inconsistent with the amount of income you report, you may face criminal convictions, fines, and even jail time for unreported income and tax evasion.

Voluntary Disclosures Program

The CRA offers a Voluntary Disclosures Program that allows taxpayers to remedy past returns without penalty. If you have unreported taxable income, ineligible expenses or unfiled information returns, you may be eligible for relief through the VDP.

References & Resources