CRA Late-Filing Penalties: Automatic vs Discretionary, and How to Get Relief

The CRA’s late-filing penalty is automatic: if you file your return after the deadline and you owe tax, the penalty is assessed without any human decision. There is no discretion at the assessment stage, no warning, and no grace period. The penalty applies whether you are one day late or one year late, though the amount increases with time. A separate, harsher penalty applies if you have been penalized for late filing in any of the three preceding years. This page covers the penalty structure for individuals and corporations, the penalties on information returns (T1135, T3, NR4), and how to get the penalties waived through the CRA’s taxpayer relief provisions.

What is the standard late-filing penalty?

Under ITA 162(1), the penalty for filing a return after the due date when tax is owing is:

5% of the unpaid tax at the filing deadline, plus 1% of the unpaid tax for each complete month the return is late, up to 12 months.

The maximum standard penalty is 17% of the unpaid balance (5% + 12 months at 1% each). On a $20,000 balance owing, the penalty ranges from $1,000 (filed one day late, only the 5% base applies) to $3,400 (filed 12 or more months late).

Key points:

• The penalty is based on the balance owing at the filing deadline, not the total tax for the year. If you made installment payments and source deductions that covered most of the tax, the penalty applies only to the remaining balance.
• If you owe zero (your payments and withholdings equal or exceed the tax), there is no late-filing penalty. You can file five years late with no penalty if you are owed a refund.
• The penalty is automatic. The CRA’s system calculates it when the return is processed. No human reviews whether the lateness was justified.
• Interest accrues separately on the unpaid balance (and on the penalty itself) at the prescribed rate, compounded daily.

What is the repeated late-filing penalty?

Under ITA 162(2), a harsher penalty applies if the CRA has assessed a late-filing penalty for any of the three preceding tax years and the CRA demanded that the return for the current year be filed on time. The repeated penalty is:

10% of the unpaid tax plus 2% per complete month the return is late, up to 20 months.

The maximum repeated late-filing penalty is 50% of the unpaid balance (10% + 20 months at 2% each). On a $20,000 balance, this is $10,000. Combined with interest, the total cost of filing late repeatedly can exceed the underlying tax.

The CRA must issue a demand for the return before the repeated penalty applies. The demand is a formal letter telling you to file by the deadline. If you received a late-filing penalty in a prior year but the CRA did not demand the current return, the standard penalty (not the repeated penalty) applies.

What about information return penalties?

Several information returns have their own penalty structures, separate from the income tax late-filing penalty:

T1135 (Foreign Income Verification Statement). The penalty for late filing is $25 per day, up to a maximum of $2,500 per year (ITA 162(7)). If the CRA demanded the T1135 and it is still not filed, the penalty increases to $500 per month up to $12,000 (ITA 162(10)). A gross negligence penalty of $2,500 can apply on top if the failure was knowing. For a detailed breakdown, see CRA T1135 penalties.

T3 and T5 slips. Late-filed information slips (T3 for trusts, T5 for investment income) are penalized at $25 per day per slip, with minimums and maximums depending on the number of slips.

NR4 (Non-Resident Withholding). The penalty for late filing follows the same structure as T3/T5 information slips.

T2 (Corporate Income Tax). The corporate late-filing penalty is the same as the individual penalty under section 162(1): 5% plus 1% per month. Corporate returns are due six months after the year-end, but corporate tax is due two or three months after the year-end (depending on the corporation’s size). A corporation that files its return six months late but paid its tax on time has no late-filing penalty (no balance owing at the return deadline).

When does the CRA waive late-filing penalties?

The CRA can waive penalties and interest through the taxpayer relief provisions under ITA 220(3.1). The taxpayer files Form RC4288 requesting relief. The CRA considers whether:

Extraordinary circumstances prevented timely filing. The CRA’s Information Circular IC07-1R1 lists examples: serious illness or medical condition, natural disaster, postal disruption, actions of the CRA (delays in providing information, incorrect advice), and civil disturbances. The COVID-19 pandemic resulted in widespread penalty relief for returns due during the lockdown period.

Actions of the CRA contributed to the delay. If the CRA gave incorrect information, failed to process a request that would have allowed timely filing, or caused administrative delays, the CRA may waive the resulting penalties.

Financial hardship would result from paying the penalties. This is a weaker ground than extraordinary circumstances, but the CRA considers it as part of the overall analysis.

The taxpayer has a good compliance history. A first-time late filer with a long history of timely filing has a better chance of relief than a taxpayer with multiple prior late-filing penalties.

The CRA does not waive penalties simply because the taxpayer forgot, was too busy, or did not know about the deadline. The standard is extraordinary circumstances, not inconvenience. However, the CRA exercises discretion, and a well-documented request with a genuine reason (illness, reliance on a professional who missed the deadline, death in the family) can succeed.

What about penalties and interest together?

The late-filing penalty and interest are separate obligations:

Penalty is the section 162 amount (5% base plus monthly additions, or the repeated rate). It is assessed once when the return is processed.

Interest is charged on the unpaid balance from the filing deadline, compounded daily at the prescribed rate (the rate is set quarterly and published by the CRA). Interest is also charged on the penalty itself from the date the penalty is assessed. In recent years, the prescribed interest rate has ranged from 5% to 10%.

The combined effect: on a $30,000 balance filed one year late, the penalty is approximately $5,100 (standard rate) and the interest is approximately $2,400 (at 8%), for a total cost of $7,500, or 25% of the original balance. For the repeated rate, the penalty alone is $10,200.

Taxpayer relief under section 220(3.1) can waive both penalties and interest. The CRA considers them separately: it may waive the penalty (extraordinary circumstances) but not the interest (the taxpayer had the use of the money), or waive both.

How does this interact with cross-border filing?

Cross-border filers face late-filing penalties in both countries, but the timelines differ:

Canadian T1 deadline: April 30 (or June 15 for self-employed, but tax is still due April 30). Extensions are not available for the payment deadline.

US Form 1040 deadline: April 15 (automatic extension to June 15 for taxpayers abroad, further extension to October 15 with Form 4868). The US failure-to-file penalty under IRC 6651(a)(1) is 5% per month up to 25%, structurally similar to the Canadian penalty.

A cross-border filer who misses both deadlines faces penalties in both countries on the respective balances. The Canadian penalty cannot be credited against the US penalty (penalties are not creditable as foreign taxes under the treaty), so the total penalty cost is additive. For cross-border penalty coordination, see owing penalties in both countries.

What should I do next?

If your return is late and you owe tax: file as soon as possible. The monthly penalty additions stop when you file. If the return is already filed and the penalty is assessed: evaluate whether you have grounds for taxpayer relief (extraordinary circumstances, CRA error, reliance on a professional) and file RC4288. If this is not your first late-filing penalty and the CRA issued a demand: be aware that the repeated penalty rate is significantly higher and the CRA is less likely to grant relief.

This guide is general information, not tax advice for your specific situation. Which points apply, and how, depends on your facts.