Late Tax Filing in Canada: What Happens and What Should You Do?

Life gets busy. Sometimes tax deadlines get missed.

Maybe you forgot to file your return. Maybe you knew you owed money and weren't able to pay. Or perhaps you've been putting off your taxes for a few years because you're not sure where to start.

Whatever the reason, filing your taxes late in Canada doesn't mean you're out of options. The important thing is to deal with it sooner rather than later.

Here's what you need to know if you're behind on your taxes and what you can do to get back on track.

What Happens If You File Your Taxes Late in Canada?

For most individuals, the deadline to file a personal income tax return is April 30. If you or your spouse or common-law partner are self-employed, the filing deadline is generally June 15. However, any balance owing is generally due by April 30.

If you file your return late and owe tax, the CRA may charge a late-filing penalty. Interest may also apply to an unpaid balance.

The important thing to understand is that filing late and paying late are two different issues. You can still file your return even if you cannot afford to pay the full amount you owe.

Filing your return as soon as possible can help you determine your actual tax position and prevent additional late-filing penalties from accumulating.

How Much Is the CRA Late-Filing Penalty?

If you file your tax return late and owe tax, the CRA's current late-filing penalty is generally:

• 5% of your balance owing; plus

• 1% of your balance owing for each full month the return is late, up to a maximum of 12 months.

  
  

A higher penalty may apply in certain situations if you have previously been charged a late-filing penalty and file another return late.

The exact amount you owe will depend on your circumstances and the balance owing on your return.

If you're already behind on your taxes, filing sooner rather than later can help prevent the late-filing penalty from continuing to increase.

What About Interest on Late Taxes?

If you owe money to the CRA and don't pay by the applicable payment deadline, interest can also be charged on the unpaid balance.

CRA interest is generally calculated daily and compounded daily, and the applicable rate can change periodically. As a result, an unpaid tax balance can continue to grow while it remains outstanding.

It's important to remember that interest and the late-filing penalty are separate. Depending on your circumstances, you may have to deal with both.

This is one reason it's generally better to file your return even if you cannot immediately pay the full amount owing.

What If I Can't Afford to Pay My Taxes?

This is one of the biggest reasons people delay filing.

You might think, "I can't afford to pay the CRA right now, so there's no point in filing."

That's usually not the best approach.

You should still file your tax return even if you cannot pay the full amount you owe.

Filing tells you exactly where you stand. Once your return has been assessed, you can look at your options for dealing with the balance, including discussing payment arrangements with the CRA where appropriate.

Ignoring the problem won't make the balance disappear, and continuing to delay your return can make the situation more difficult.

Also, don't automatically assume that being behind means you owe the CRA money. Depending on your circumstances, you may be entitled to a refund, tax credits, or other amounts for one or more years.

The only way to know your actual tax position is to file the outstanding returns.

What If I'm Several Years Behind on My Taxes?

If you've missed one return, getting caught up may be relatively straightforward.

If you've missed several years, it can feel much more overwhelming. The best approach is to break the process into manageable steps.

Start by determining exactly which tax years are outstanding. Then gather whatever documents you have, including:

• T4s and other tax slips

• Receipts and expense records

• Investment information

• Business records, if you're self-employed

• Previous tax returns

• Notices and correspondence from the CRA

Don't worry if you don't have everything organized yet.

If you're missing tax slips or other information, an accountant can help you determine what's needed and identify the next steps.

It's also important not to assume that being several years behind automatically means you owe a large amount. Depending on your circumstances, you may have been entitled to refunds, deductions, tax credits, or benefits for some of those years.

Can CRA Penalties and Interest Be Waived?

In some cases, the CRA may cancel or waive penalties and interest under its taxpayer relief provisions.

For example, circumstances beyond your control may sometimes be considered when the CRA reviews a request for relief.

However, relief isn't automatic, and eligibility depends on the specific facts of your situation. Simply being unable to pay a tax balance does not necessarily mean that penalties or interest will be cancelled.

If you've accumulated significant penalties or interest, it may be worthwhile to have your situation reviewed before assuming there's nothing you can do.

What Should You Do If You Filed Your Taxes Late?

If you're not sure where to begin, keep it simple.

1. Find out which returns are missing

Check your CRA records or speak with your accountant to determine which tax years still need to be filed. If you've been behind for several years, make a list of every outstanding return before you start.

2. Gather your documents

Collect your tax slips, receipts, financial records and any CRA letters or notices you've received.

3. File the outstanding returns

File the outstanding returns as soon as you reasonably can, even if you expect to owe money. Filing allows your returns to be assessed and gives you a clearer picture of your actual tax situation.

4. Deal with any balance owing

Once your returns have been assessed, review the amount owing and your available payment options. Depending on your circumstances, you may also want to determine whether you could qualify for taxpayer relief from certain penalties or interest.

5. Get help if you're overwhelmed

Consider working with an accountant if you're several years behind, have unfiled business returns, have received CRA correspondence, have incomplete records, or simply aren't sure where to begin.

Getting professional help can make the process more manageable and help you avoid overlooking important tax issues.

Behind on Your Taxes? We Can Help You Get Caught Up.

Being behind on your taxes can feel overwhelming, but you don't have to figure everything out at once.

Whether you're one year behind or haven't filed for several years, our accounting team can help you identify what's outstanding, organize the required information, prepare your tax returns, and understand your options for dealing with any balance owing.

If you're an Ontario resident or business owner with overdue tax returns, contact us to discuss your situation and take the first step toward getting caught up.

Don't let another tax deadline pass. Getting started is often easier than you think.

The information contained in this article is for general educational purposes only and is not intended to replace professional tax, legal, or accounting advice. Each taxpayer’s circumstances are unique, and readers should consult with a qualified advisor regarding their specific situation.