Avoiding penalties

If you do not comply with the requirements and regulations under the Income Tax Act, one or more of the following penalties may apply:

Sometimes, the CRA will consider cancelling or waiving penalties and interest if the reason for filing late or not paying an amount when it is due may be beyond the taxpayer's control.

Failure to file penalties

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 the CRA 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) of the Income Tax Act

Instalment penalty

When instalment interest is more than $1,000, we may charge an instalment penalty under section 163.1 of the Income Tax Act.

We calculate the penalty by subtracting from the instalment interest the greater of either:

One-half of the difference is the amount of the penalty.

See our example of how to calculate instalment interest and penalty.

Large corporations

A large corporation has to file:

If a corporation fails to file these returns, in addition to any other penalty as applicable, a penalty will be charged for each complete month that the returns are late, up to a maximum of 40 months. The penalty will be calculated by adding the following:

To identify the corporation as a large corporation, answer yes to the question at line 233 on page 2 of the T2 return.

Note

A corporation is a large corporation if the total taxable capital employed in Canada at the end of the tax year by it and its related corporations is over $10 million.

To determine if the total taxable capital employed in Canada of the corporation and its related corporations is greater than $10 million use whichever one of the following schedules that applies:

A corporation with a permanent establishment in Newfoundland and Labrador that is a financial institution, as defined under provincial legislation, has to file Schedule 305, Newfoundland and Labrador Capital Tax on Financial Institutions.

A corporation with a permanent establishment in Nova Scotia at any time in the tax year that is a financial institution, as defined under provincial legislation, has to file Schedule 352, Nova Scotia Financial Institutions Capital Tax.

Reference
Section 235 of the Income Tax Act

Not reporting 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:

Reference
Subsections 163(1) and 163(1.1) of the Income Tax Act

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.

Note

If a corporation is charged a penalty for making a false statement or omission under subsection 163(2), the corporation cannot be charged a penalty on the same amount for failing to report income under subsection 163(1).

Reference
Subsections 163(1) and (2) of the Income Tax Act

Misrepresentation in tax matters by a third party

The CRA will charge a penalty if a person:

References
Information Circular IC01-1, Third-Party Civil Penalities
Section 163.2 of the Income Tax Act

Non-resident corporations

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

This penalty applies if the amount calculated is more than the amount of penalty usually applied under subsections 162(1) and (2), as discussed in Failure to file penalties.

References
Subsection 162(2.1) of the Income Tax Act

Non-compliance with mandatory electronic filing

All corporations with annual gross revenue of more than $1 million have to file their T2 return electronically, except for insurance corporations, non-resident corporations, corporations reporting in functional currency and corporations that are exempt from tax payable under section 149 of the Income Tax Act.

This $1 million threshold is eliminated for tax years starting after 2023. Most corporations have to file their return electronically. 

Corporations are subject to a penalty for non-compliant returns.

References
Subsection 150.(2.1)
Regulation 205.1(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:

References
Sections 162 and 163.1 of the Income Tax Act

Forms and publications

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