What happens if you file taxes late in Canada depends on whether or not you will end up paying more taxes when you file. Individual income tax filers (including sole proprietors and partners), who file their tax late and have a balance due to the Canada Revenue Agency (CRA) will be subject to a late filing penalty, which is:
- 5% of your balance due, plus
- 1% of your balance due for each month of late return, up to a maximum of 12 months
If you have already been charged a late filing penalty in any of the previous three tax years, the penalty increases to:
- 10% of your balance due, plus
- 2% of your balance due for each month of delay in the return, up to a maximum of 20 months
Obviously, you want to file your taxes and pay the balance due on time if possible.
Deadlines for Filing Individual Returns
The deadline to file an individual tax return is April 30, unless you or your spouse are self-employed, in which case the deadline is June 15. (Be careful, though; you have until then to file your taxes; if a balance is due, it’s still due by April 30.) If you pay a balance by mail, your letter must be postmarked on or before April 30.
Deadlines for business owners
If your business is a sole proprietorship or a partnership, your business income is reported on form T2125, which is part of the T1 personal income tax return. The penalties for this type of entrepreneurs who file their taxes late are the same as for natural persons, although, as seen above, these entrepreneurs have until June 15 to file their taxes.
Deadlines and Penalties for Corporate Returns
Late filing penalties for Canadian corporations are the same as for individuals (as noted above). The deadlines to file corporate returns (T2) are within six months after the end of the fiscal year, but the taxes owed must be paid within two months after the end of the fiscal year or three months if:
- The corporation is a Canadian-controlled private corporation, and
- The corporation is claiming the small business deduction.
Please note that all corporations in Canada are required to file an annual T2 return, whether or not the company is inactive. The only way to avoid filing an annual return is to formally dissolve the corporation. Historically, the CRA has tended to be lenient in applying late filing penalties to Canadian resident corporations when no taxes are due. For nonresident corporations, the penalty often applies even if no tax is due.
Taxpayer Relief for Exceptional Circumstances
If you’re filing your taxes late due to circumstances beyond your control, don’t panic; the Canada Revenue Agency (CRA) may waive the late filing penalty and applicable interest. You can obtain more information in this regard in CRA circular IC07-1: Taxpayer Relief Provisions.
To make a request for penalty or interest relief, you can fill out and send Form RC4288 Taxpayer Relief Request – Cancel or Waive Penalties or Interest. Examples of exceptional circumstances include:
- You have suffered a serious illness or an accident
- You are experiencing emotional distress from a divorce or the death of a family member.
- You have experienced a disaster such as a fire, flood, or earthquake.
- If you are communicating by mail, interruption through a postal strike
You can also avoid penalties and interest if the delay is the result of CRA actions, including:
- Processing of errors by the CRA
- Incomplete or incorrect information on the return, resulting in corrections or requests for additional information by the CRA
- Processing delays resulting in late assessment of amounts due
- Delays resulting from reviews, audits, objections, or appeals
The CRA may also cancel some or all of the penalties and interest if the inability to pay is due to financial hardship, such as job loss, loss of business income, medical bills, etc. In cases of inability to pay, you will need to show that this is the case by providing detailed financial information to the CRA, including statements of your assets, income, expenses and liabilities.
The CRA recommends that you use form RC376 Taxpayer’s Request for Relief – Statement of Income and Expenses and Assets and Liabilities for Individuals for this purpose. This form must be submitted along with form RC4288, either online using My Account or My Business Account, or by mail to the nearest tax service office.
What happens if you can’t pay the taxes you owe?
Even if you owe more tax than you can afford by the income tax filing deadline, you should still file your income tax return on time to avoid late-filing penalties. If you can afford a partial payment of the amount due, the CRA may be more inclined to waive the penalties.
If the amounts and penalties owed are significant and there is no possibility of repayment, either in full or through a payment schedule, you may need to consult with a bankruptcy trustee who can further advise you on your options, including negotiating. of a Consumer Proposal with the CRA or file for bankruptcy.