Filing your taxes accurately and on time in Canada is crucial to avoid penalties. For assistance, consider consult us and choose from our range of plans. Stay organized and meet deadlines to manage your finances effectively!
Why could you end up paying tax penalties or fees?
There are a few common reasons why you could be charged penalties or fees related to tax filing:
- If you file your return late.
- If you owe taxes and have not paid them or have still not paid taxes owed from previous years.
- If you failed to report all of your income on your tax return or have repeatedly failed to do so.
It’s important to file your tax return on time, to avoid late filing penalties. There are also additional penalties and fees for failing to pay taxes that you owe.
What are the tax penalties you could face?
The penalties and corresponding fees you may have to pay CRA include:
1. Penalties and interest fees for filing your taxes late
In Canada, the tax filing deadline is April 30 every year for most people. There are different dates for self-employed people and the dates may vary for filing a deceased person’s return.
If you file your tax return after the deadline and also owe taxes, the Canada Revenue Agency (CRA) will charge a late-filing penalty. It calculated as 5% of the amount of tax you owe, plus 1% for every month your return is late, for up to 12 months. You could end up having to pay a maximum of 17% of the tax you owe.
If you file a late return again in the next three years, the penalties are doubled. You’ll be charged 10% of the balance you owe, plus an additional 2% you owe for each full month that your return is late, to a maximum of 20 months.
| Penalty | Monthly fee | Maximum | |
| First time filing late | 5% | 1% | 12 months |
| Filing late again (within three years) | 10% | 2% | 20 months |
You’ll also be charged interest on taxes you owe, at the prescribed interest rate. That means that the longer you wait to pay the taxes owed, the larger your total bill will be — plus you will still owe the late filing penalty. Interest is compounded daily. The prescribed interest rate can change every three months.
If you owe taxes from previous years, the CRA will keep charging you interest compounded daily on taxes you owe. Any tax payments you make will be applied first to your taxes from previous years.
It’s important to file on time, even if you are owed a refund (and so do not owe any tax payment). If you file late, you may interrupt payment dates for any tax benefits such as the GST/HST credit or Canada Child Benefit.
You can find information about your tax return and benefits in your CRA MyAccount. If you have not signed up for MyAccount, you can do so for free any time.
2. Penalties for making a false statement or omission
If you knowingly make a false statement or omission on your tax return, you can be charged a penalty. This means if you gave incorrect information when you filed your taxes you may have to pay a penalty. The penalty amount will be the greater of:
- $100, or
- 50% of the difference between the understated tax (or overstated credits) related to the amount you failed to report, and the amount of tax withheld related to the amount you failed to report.
If you fail to report an amount on this year’s return and you also failed to report an amount in any one of the previous three years, you may have to pay a federal and provincial penalty. The penalty is the lesser amount of:
- 10% of the amount you failed to report (federal and provincial/territorial), or
- 50% of the difference between the understated tax (or overstated credits) related to the amount you failed to report, and the amount of tax withheld related to the amount you failed to report.
Learn more about interest and penalties.
What can you do if you want to fix an error in your tax return?
The Voluntary Disclosures Program (VDP) grants relief on a case by case basis to people who voluntarily come forward to fix errors or omissions in their tax filings, before being contacted about it by the CRA. If you apply through the program, they may waive some of the penalties.
To qualify for the Voluntary Disclosures Program, you must meet these four conditions:
- You must approach the CRA yourself. If the CRA discovers the oversight and contacts you, you will not qualify for any relief.
- You must offer complete and full information.
- You must be facing a penalty.
- In most cases, the outstanding information must be more than one year overdue.
To disclose your situation, complete Form RC199 and include any supporting documents. Even if the CRA waives the penalties, you’ll still have to pay the taxes plus interest.
Learn more about the CRA’s Voluntary Disclosures Program.
What if you can’t pay your tax bill?
It’s important to file your taxes on time even if you can’t pay all of the taxes you owe. This way you will avoid any late-filing penalties.
If you can’t afford to pay your taxes, there are steps you can take. If you can’t pay your balance in full, you can ask CRA a payment arrangement. This is a plan to help you pay your taxes. But you will still be charged daily compound interest on any unpaid balance (starting May 1) until you pay it in full.
Learn more about setting up payment arrangements with the CRA.
The CRA may waive or cancel penalties and/or interest on your unpaid taxes in certain circumstances. This is known as taxpayer relief. This may happen if:
- You lose your job — or suffer some other financial hardship.
- There are circumstances beyond your control — for example, disasters like fires and floods, disruptions like a postal strike, a serious illness or accident, or serious emotional or mental distress, such as a death in the immediate family.
- The CRA made an error — for example, processing errors, errors in CRA publications or incorrect information provided to taxpayers, and unreasonable processing delays.
To request taxpayer relief, you can submit this request online using MyAccount, or by filling out a PDF form by hand. The steps include:
- Complete Form RC 4288 to apply for relief within 10 years of the tax owing.
- Give the facts and reasons why the charges should be cancelled or waived.
- Include all relevant supporting documents and information.
What happens if you don’t pay what you owe?
If you don’t take steps to resolve your unpaid taxes, the CRA can take legal action against you. This could include garnishing your income, bank account, seizing assets, or other means to collect the amount you owe. Before starting legal action, the CRA must do the following:
- Make three attempts to give you a verbal legal warning by phone.
- Send you one written legal warning letter.
A legal warning is valid for 180 days. The CRA can start legal action at any time during this period.
Caution
Beware of phishing scams pretending to be the Canada Revenue Agency. If the CRA takes legal action against you, they would contact you verbally by phone, and by letter. They will not send you text messages or robo-call you. The CRA also does not send you text messages to notify you about refund or benefits.
Learn more about CRA scam alerts.