Deadlines, Penalties and Official Sources
CRA late-filing penalty and interest: how they are calculated and how to reduce them
How the CRA's late-filing penalty (5% + 1% a month, or 10% + 2% for repeat filers) and daily interest are calculated, with worked examples, and how to ask for relief.
If you file your return after the deadline and you owe tax, the CRA charges a late-filing penalty of 5% of the balance owing plus 1% of the balance for each full month late, up to 12 months. If you were already charged a late-filing penalty in any of the three previous years and the CRA had sent you a demand to file, the penalty becomes 10% plus 2% a month, up to 20 months. On top of that, compound daily interest runs on unpaid tax from May 1 and on penalties from the day after the deadline. If you are owed a refund or owe nothing, there is no late-filing penalty, but filing late still delays benefits.
This guide sits in the mistakes and sources hub. It describes federal rules; Revenu Québec applies its own penalties on the Quebec return. General information, not tax advice.
The penalty formula
| Situation | Penalty |
|---|---|
| First late filing with a balance owing | 5% of the balance owing + 1% × number of full months late (maximum 12) |
| Repeat: penalty in any of the 3 previous years and a demand to file | 10% of the balance owing + 2% × number of full months late (maximum 20) |
| Return late but refund or zero balance | No late-filing penalty |
| Balance paid on time, return filed late | No balance owing at the deadline, so no penalty (but file anyway) |
The penalty is based on the balance owing at the filing deadline, so paying what you expect to owe by April 30, 2027 removes most of the exposure even if the return itself is late.
Worked examples (illustrative)
Example 1: first-time late filer. Balance owing for 2026: $3,000. Return filed on September 10, 2027, which is four full months after April 30.
- Penalty: 5% × $3,000 = $150, plus 1% × 4 × $3,000 = $120, total $270.
- Plus interest on $3,000 from May 1 and on the $270 penalty, compounded daily, until paid.
Example 2: repeat late filer. Same $3,000 and four months late, but the person had a late-filing penalty for 2024 and received a demand to file.
- Penalty: 10% × $3,000 = $300, plus 2% × 4 × $3,000 = $240, total $540, plus interest.
Example 3: paid on time, filed late. The person paid $3,000 on April 28, 2027 and filed in September. Balance owing at the deadline was $0, so there is no late-filing penalty and no interest. The CCB and other benefits may still be interrupted until the return is assessed.
How CRA interest works
- Interest on unpaid tax is charged at the prescribed rate set by the CRA every quarter (the rate for amounts owed to the CRA is higher than the rate the CRA pays on refunds) and is compounded daily.
- It starts on May 1, 2027 for a 2026 balance, even for self-employed people whose filing deadline is June 15.
- Interest also applies to penalties and to unpaid or late instalments; see tax instalments.
- Interest on personal taxes is not deductible.
The CRA publishes the current prescribed rates each quarter on canada.ca. Because rates change, this guide does not quote a figure; check the latest one if you are estimating a large bill.
Other penalties to know
| Penalty | When it applies (simplified) |
|---|---|
| Repeated failure to report income | You failed to report an amount of $500 or more on your return for the year and also in any of the three previous years. The penalty is the lesser of 10% of the unreported amount and 50% of the difference between the understated tax and the tax withheld on that amount |
| False statements or omissions (gross negligence) | You knowingly, or in circumstances amounting to gross negligence, made a false statement. Generally 50% of the understated tax, minimum $100 |
| Instalment penalty | Instalment interest above $1,000, with further conditions |
| Failure to file information returns | For example, missing Form T1135 for specified foreign property over $100,000 |
These are in the Income Tax Act (section 162 for late filing, section 163 for failure to report and false statements). The law's exact wording, on the Justice Laws website, governs.
How to reduce or cancel penalties and interest
- File as soon as possible. The 1%-a-month penalty stops growing once you file.
- Pay what you can. Interest applies only to what remains unpaid.
- Ask for a payment arrangement if you cannot pay in full. It stops collection action, though interest continues.
- Request taxpayer relief (Form RC4288) if the delay was caused by circumstances beyond your control, such as serious illness, a death in the family, a natural disaster or a CRA error or delay. Requests must be made within 10 calendar years from the end of the year in question. Include documents (for example, hospital records).
- Consider a voluntary disclosure if you have unfiled years or unreported income the CRA has not yet contacted you about. The CRA's Voluntary Disclosures Program can relieve some penalties and part of the interest in qualifying cases; its conditions were revised in recent years, so read the current program rules and consider professional advice before applying.
Quebec
Revenu Québec charges its own late-filing penalty and interest on unpaid Quebec tax, applied to the Quebec balance, and administers its own relief and voluntary disclosure programs. A Quebec resident who files the federal return late will normally face both sets of charges on the two balances. Check Revenu Québec's pages on interest and penalties for the exact Quebec rules.
Frequently asked questions
Is there a penalty if I file late but am owed a refund?
No penalty, but you lose the use of your money and benefits such as the CCB and the Canada Groceries and Essentials Benefit may be paused. Refund interest is paid only in limited cases.
Does the penalty apply to the federal and provincial balance?
Yes, outside Quebec the balance on the federal return includes provincial tax, and the penalty is calculated on the total balance owing.
What counts as a full month?
Each complete month after the due date. A return filed one day late with a balance owing still attracts the 5% part.
Can the CRA waive interest because rates are high?
High rates alone are not a reason for relief. Relief is considered for extraordinary circumstances, financial hardship (inability to pay) or CRA actions or delays.
Official sources
- CRA: late-filing penalty — rates for first and repeat late filing
- Canada Revenue Agency — prescribed interest rates, payment arrangements, taxpayer relief, voluntary disclosures
- Justice Laws Website — Income Tax Act, sections 162 and 163
- Revenu Québec — Quebec penalties and interest
