CRA Late-Filing Penalties, Interest and Relief

I received a CRA charge: what should I check first?

Match the notice to the account, period, charge, filing date and payments. If the CRA assessed a charge incorrectly, object within 90 days after it sends a T2 or GST/HST assessment; for a T1, the deadline is the later of that date or one year after the return's filing due date (Income Tax Act, s. 165(1); Excise Tax Act, s. 301(1.1)). See reviews, audits and voluntary disclosure. If the charge is correct but circumstances prevented compliance, consider relief (CRA: relief options).

How is the late-filing penalty on a personal or corporate return worked out?

For a late T1 or T2, the ordinary penalty is 5% of Part I tax unpaid when the return was due, plus 1% of that amount for each complete month late, up to 12 months. Filing on time avoids this penalty even if payment is late; interest on unpaid tax is separate (Income Tax Act, s. 162(1); CRA: personal tax penalties).

Both conditions in the second row are required. A reminder alone is not enough; check whether the CRA sent a formal demand and an earlier late-filing penalty was payable (Income Tax Act, s. 162(2)). A later year's loss carryback does not erase the penalty base (Income Tax Act, s. 162(11); s. 161(7)). If you have several unfiled years, the filing order and any other programs need a separate review: see unfiled personal returns or unfiled corporate returns.

Why was my corporation penalized when it owed no tax?

A Canadian-resident corporation with no unpaid Part I tax normally has no ordinary T2 late-filing penalty under section 162(1). Read the assessment's penalty description: another rule may apply even to a nil-balance T2 (Income Tax Act, s. 162).

Check the tax year, corporation's residence, electronic filing status, return type and section cited on the notice before asking for cancellation. For the T2 filing and payment dates, see filing your corporate return.

What happens if I file or pay GST/HST late?

A late GST/HST return draws the ordinary filing penalty only when money was owing at the filing deadline. A late payment can draw interest even when the return was filed on time (CRA: GST/HST filing penalties).

These are distinct charges; the notice should identify which one applies. Filing dates, net tax and input tax credits are covered in filing GST/HST returns.

What if payroll remittances or T4 and T5 slips are late?

Late payroll remittances are charged by how many days the deducted amounts reach the CRA late. Late T4 or T5 information returns have a separate penalty based on the number of slips and days late; filing slips does not cure a missed remittance (CRA: payroll remittances; CRA: information returns).

The ordinary payroll penalty applies to deducted amounts over $500. A smaller amount can still be penalized if the failure was knowing or grossly negligent. A second or later assessed failure in a calendar year can rise to 20% if knowing or grossly negligent; interest also runs on unpaid amounts and penalties (CRA: when to remit). Payroll deductions held back from workers need prompt attention; see running payroll.

For late T4 and T5 returns, the CRA's small-business relief policy gives these amounts per return type, with the minimum shown below. Larger slip counts have higher daily rates and caps (CRA: when to file information returns).

The daily calculation stops after 100 days. Paper filing when electronic filing is required is a different penalty (CRA: how to file information returns).

How does the CRA charge interest, and why did it start before my filing deadline?

Interest follows the payment due date, which may be earlier than the return's filing deadline. The CRA compounds overdue interest daily, sets the prescribed annual rate each calendar quarter, and charges interest on unpaid penalties. For a late T1 or T2 penalty, that interest runs from the filing due date, even if assessed later (Income Tax Act, s. 161(11); CRA: payroll).

Check the CRA's rate for each calendar quarter, then match the balance-due day, payments and assessment adjustments to the statement of account. A later reassessment can add tax and interest back to the original payment due date (CRA: personal tax).

Why was I charged instalment interest, and how can I reduce it?

Instalment interest arises when required instalments are missing, late or too small, even if the final balance is paid by its due date. For individuals, the CRA also requires an instalment reminder showing an amount to pay. It calculates interest to the balance-due day using the available payment method that gives the least interest, then offsets credit from early or excess instalments (CRA: instalment interest).

The CRA charges the net individual instalment interest only if it exceeds $25. A separate instalment penalty is possible only if that interest exceeds $1,000; the formula takes half the amount by which actual interest exceeds the greater of $1,000 or 25% of the interest that would arise with no instalments (CRA: interest and penalty charges).

Paying a later instalment early or paying extra can reduce interest for the same tax year; the credit cannot be refunded or moved to another year. Corporations also face instalment interest and a penalty, with their own payment schedule (CRA: individual instalments; CRA: corporate instalments). Whether an individual must pay instalments is covered in self-employed income tax; the corporate schedule is covered in filing your corporate return.

Can the CRA cancel penalties and interest?

The CRA may cancel or waive eligible penalties and interest when the facts justify relief; it cannot cancel the underlying tax through this process. Some charges fall outside its authority, including the GST/HST gross-negligence penalty under section 285 of the Excise Tax Act. Check the provision on your notice (CRA: who can apply). Relief is discretionary, and each request is decided on its facts (CRA: Taxpayer Relief Provisions, paragraphs 11 and 20).

These are CRA guidelines, not an automatic entitlement or a closed list. The CRA also looks at compliance history, care taken and how quickly the problem was fixed (CRA: Taxpayer Relief Provisions, paragraphs 23–33). A relief request does not stop interest from accruing on an unpaid balance; paying what you can limits further interest (CRA: Taxpayer Relief Provisions, paragraph 22.1).

How do I ask for relief, and how far back can it go?

Apply through Request relief of penalties and interest in CRA My Account for individuals or My Business Account for businesses; an authorized representative can use Represent a Client. To apply by mail, send Form RC4288 or a letter to the designated office. Identify each charge and period, explain why the obligation could not be met, and attach dated evidence (CRA: how to apply; CRA: Taxpayer Relief Provisions, paragraphs 29–32).

Gather the notices, account statement, return and payment dates, CRA correspondence, and a short timeline connecting the event to the missed deadline. For inability to pay, individuals should add Form RC376 or equivalent financial details; a business should provide income, expenses, assets and liabilities with supporting records (CRA: Taxpayer Relief Provisions, paragraphs 30–32).

The time limit differs by charge. For income-tax penalties, the tax year or partnership fiscal period must have ended in one of the 10 calendar years before the request year. For eligible GST/HST penalties, use the reporting period's end instead. For interest, the CRA can consider interest that accrued during those 10 calendar years even if the debt arose earlier; interest accruing in the request year can also be considered (CRA: relief time limits; CRA: Taxpayer Relief Provisions, paragraphs 12–16). If an audit is unresolved near the limit, a protective request can preserve the deadline and be completed later. The CRA currently reports an average processing time of about 16 months, which can vary with the file (CRA: cancel or waive penalties and interest).

What if my relief request is denied?

A denied or partly granted CRA relief request can be sent for a second administrative review. Use Form RC4288 or a letter explaining why the first decision should be reconsidered and include any new relevant facts; a different CRA official reviews it (CRA: Taxpayer Relief Provisions, paragraphs 103–104.2).

A relief decision is not challenged by an ordinary tax objection. Judicial review of how the discretion was exercised may be available, but the Federal Court filing window is 30 days from notice of the decision unless extended by the Court (CRA: Taxpayer Relief Provisions, paragraphs 103–108). An incorrectly assessed tax, penalty or interest charge is a separate dispute; use the objection deadlines above and see reviews, audits and voluntary disclosure.

Are CRA penalties and interest tax-deductible?

CRA income tax penalties and interest are not deductible in computing business income. The Income Tax Act also generally denies deductions for government fines and penalties, and specifically denies GST/HST interest; the CRA says a GST/HST filing penalty cannot be deducted (Income Tax Act, ss. 18(1)(t) and 67.6; section 67.6; CRA: GST/HST penalties).

Keep these charges separate from ordinary financing interest in the accounts. A penalty waived by the CRA also should not be treated as a business expense.

How does Revenu Québec handle penalties and relief?

Revenu Québec calculates Québec charges separately from CRA charges. Its income-tax late-filing penalty uses the unpaid balance and full months late; QST and Québec source-deduction remittance penalties depend on days overdue. A separate failure-to-file penalty may apply to business returns or RL slips, but not GST returns (Revenu Québec: late-filing penalties; Revenu Québec: failure to file).

Revenu Québec has its own cancellation or waiver process for Québec-administered interest, penalties and charges. It lists exceptional events, its own actions and demonstrated inability to repay a debt largely made up of charges as possible grounds; it also lists circumstances it will not accept, including a third party's mistake or not knowing the law (Revenu Québec: cancellation or waiver).

Use Form MR-94.1-V or a letter for the general Revenu Québec request. For GST/HST or QST interest and penalties handled there, use Form FP-4288-V. If accepted, relief takes effect once the portion of the debt not cancelled is fully paid (Revenu Québec: payment agreements). If refused, ask Revenu Québec for a review explaining why the decision is unfair or unfounded; its relief decision is not contested through an ordinary objection (Revenu Québec: cancellation or waiver). Keep federal CRA and Revenu Québec notices separate so each request reaches the right authority.

Example

Illustrative only; all amounts are Canadian dollars. A corporation has C$10,000 of Part I tax unpaid when its T2 is due. It files the return two complete months late, after paying none of that tax. The ordinary filing penalty is C$500 plus C$100 for each full month, or C$700 total. Daily compound interest is extra and starts from the corporation's balance-due day, which may be earlier than the filing deadline. If the corporation had paid the C$10,000 before the filing deadline, the ordinary section 162(1) penalty would instead be zero, though interest could still have accrued between the balance-due day and payment. A separate electronic-filing or information-return penalty would need its own check.

Different for you?

• Several T2 returns are missing: see catching up on corporate returns.
• Several personal returns are missing: see catching up on personal returns.
• The assessment is wrong, or you are considering voluntary disclosure: see reviews, audits and voluntary disclosure.
• A T1135 or T1134 is late: see foreign property and affiliate reporting.
• Payroll deductions remain unpaid, a repeat or gross-negligence penalty appears, or relief was denied: gather the notices, account statements and dated evidence before seeking tax preparation help.