Failure-to-File Penalty

The failure-to-file penalty, more commonly called the late-filing penalty, is charged under subsection 162(1) of the Income Tax Act when a return is filed after its deadline and there is a balance owing. The penalty is 5% of the unpaid tax plus 1% of that balance for each complete month the return is late, to a maximum of twelve months — a ceiling of 17%. A harsher repeat-failure penalty applies under subsection 162(2) where the CRA issued a demand to file and the taxpayer was charged a late-filing penalty in any of the three preceding years: 10% of the balance plus 2% per month for up to twenty months. Because the penalty is calculated on a balance owing, a return for a year with a refund or a nil balance carries no late-filing penalty regardless of how late it is filed.