Penalties

Penalties

If you file your return late

If you file your return late, a penalty applies. The penalty is 5% of the unpaid tax that is due on the filing deadline, plus 1% of this unpaid tax for each complete month that the return is late, up to a maximum of 12 months.

The corporation will be charged an even larger penalty if the CRA issued a demand to file the return under subsection 150(2) and if it assessed a failure to file penalty for the corporation in any of the three previous tax years.

The penalty is 10% of the unpaid tax when the return was due, plus 2% of this unpaid tax for each complete month that the return is late, up to a maximum of 20 months.

References
Subsections 162(1) and 162(2)

Non-resident corporations

A non-resident corporation will be subject to a failure to file penalty equal to the greater of:

• the amount calculated under subsections 162(1) or (2), as discussed above, and

• an amount equal to the greater of:

  • $100

  • $25 for each complete day that the return is late, up to a maximum of 100 days

Reference
Subsection 162(2.1)

Large corporations

A large corporation has to file the T2 Corporation Income Tax Return and, if applicable, a Schedule 38, Part VI Tax on Capital of Financial Institutions. If a corporation fails to file these returns, in addition to any other penalty as applicable, the CRA will charge a penalty for each complete month that the returns are late, up to a maximum of 40 months. The penalty will be the sum of the following amounts:

• 0.0005% of the corporation's taxable capital employed in Canada (within the meaning assigned in Part I.3) at the end of tax year

• 0.25% of the Part VI tax payable by the corporation [before the deductions in subsection 190.1(3)]

To identify the corporation as a large corporation, answer yes to the question at line 233 on page 2 of the return.

Reference
Section 235

If you do not comply with mandatory electronic filing

The CRA will charge a $1,000 penalty for non-compliance if a corporation that is required to file electronically does not comply with the requirement.

Reference
Subsection 162(7.2)

If you do not report income

The CRA will charge a penalty if a corporation does not report an amount equal to or greater than $500 that is required to be included in computing its income on its return in a tax year and any of the three previous tax years.

This penalty will not be applied if the corporation is liable under subsection 163(2) for the same unreported amount.

The repeated failure to report income penalty is equal to the lesser of:

• 10% of the amount you did not report on your return for the tax year

• 50% of the difference between the understated tax payable (and certain overstated refundable tax credits) related to the amount you did not report and the amount of tax withheld related to the amount you did not report

References
Subsections 163(1) and 163(1.1)

False statements or omissions

The CRA will charge a penalty if a corporation, either knowingly or under circumstances of gross negligence, makes a false statement or omission on a return. The penalty is the greater of either $100 or 50% of the amount of understated tax.

Reference
Subsection 163(2)

Misrepresentation in tax matters by a third party

The CRA will charge a penalty if a person advises or helps another person to file a false return or knowingly allows a taxpayer to submit false tax information.

References
IC01-1, Third-Party Civil Penalties
Section 163.2

Other penalties

The CRA can also charge penalties for late or incomplete instalment payments and for not providing information on an authorized or prescribed form.

The most common forms are:

• Form T106, Information Return of Non-Arm's Length Transactions With Non-Residents (see page 36)

• T5013 FIN, Partnership Financial Return and T5013 SUM, Information Slips Summary (see page 35)

• T5018 SUM, Summary of Contract Payments

• Form T1134, Information Return Relating to Controlled and Not-Controlled Foreign Affiliates, Form T1135, Foreign Income Verification Statement, Form T1141, Information Return in Respect of Contributions to Non-Resident Trusts, Arrangements or Entities, and Form T1142, Information Return in Respect of Distributions From and Indebtedness to a Non-Resident Trust (see "Foreign property" on page 36)

• Form T661, Scientific Research and Experimental Development (SR&ED) Expenditures Claim, Part 9, Claim preparer information (see page 65)

References
Sections 162 and 163.1

Cancel or waive penalties and interest

The Canada Revenue Agency (CRA) administers legislation, commonly called the taxpayer relief provisions, that gives the CRA discretion to cancel or waive penalties and interest when taxpayers cannot meet their tax obligations due to circumstances beyond their control.

The CRA's discretion to grant relief is limited to any period that ended within 10 calendar years before the year in which a relief request is made.

For penalties, the CRA will consider your request only if it relates to a tax year or fiscal period ending in any of the 10 calendar years before the year in which you make your request. For example, your request made in 2024 must relate to a penalty for a tax year or fiscal period ending in 2014 or later.

For interest on a balance owing for any tax year or fiscal period, the CRA will consider only the amounts that accrued during the 10 calendar years before the year in which you make your request. For example, your request made in 2024 must relate to interest that accrued in 2014 or later.

Taxpayer relief requests can be made online using the CRA's My Account, My Business Account (MyBA) or Represent a Client digital services:

• My Account: After signing in, select "Accounts and payments", then "Request relief of penalties and interest."

• MyBA or Represent a Client: After signing in, on the overview page, select the appropriate program from the left menu and then select the account. Finally, select "Request relief of penalties and interest" from the right menu.

You can also fill out Form RC4288, Request for Taxpayer Relief - Cancel or Waive Penalties and Interest, and send it in one of the following ways:

• online using My Account: select "Submit documents" from the left menu; then select "Submit documents" again at the bottom of the next page; and then follow the instructions

• online using MyBA or Represent a Client: for a new case select "Submit documents" from the left menu; then select "No case or reference number?"; and finally, select "Request taxpayer relief - cancel or waive penalties and interest (Form RC4288)"

• by mail to the designated office, as shown on the last page of the form, based on your place of residence

For information on the "Submit Documents online" service, go to canada.ca/cra-submit-documents-online.

For more details on the required supporting documents, relief from penalties and interest, and other related forms and publications, go to canada.ca/penalty-interest-relief.

References
Subsection 220(3.1)
IC07-1R, Taxpayer Relief Provisions

Voluntary Disclosures Program

The Voluntary Disclosures Program (VDP) gives you a second chance to correct a tax return you previously filed or to file a return that you should have filed. This has to be done before the CRA starts any enforcement action or investigation against you.

Applications are processed under one of the two programs: the limited program and the general program.

The limited program limits the level of relief for corporations who intentionally avoided their tax obligations. Under this program, corporations will not be referred for criminal prosecution or charged gross negligence penalties. However, they will be charged other penalties and interest as applicable.

The general program provides relief to corporations that want to correct unintentional errors. Under this program corporations will not be charged penalties and will not be referred for criminal prosecution related to the information being disclosed. The CRA will provide partial interest relief for the years preceding the three most recent years of returns required to be filed.

For more details on the VDP, get the most recent version of Information Circular IC00-1, Voluntary Disclosures Program, or go to canada.ca/taxes-voluntary-disclosures.

If you want, you can discuss your situation first on a no-name or hypothetical basis. To speak with a CRA official, contact General Enquiries at 1-800-959-5525. For complex technical reporting issues or questions, you will be referred to a CRA official in a specialized area. This pre-disclosure discussion does not constitute acceptance into the VDP anymore.

The process of making disclosures on a no-name basis has ended.

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