Is it compulsory to file a tax return in Canada?
If you owe taxes, the Canada Revenue Agency expects you to file your income tax return by the deadline date of May 1st.
When you fail to meet this deadline, a late-filing penalty and interest are charged.
If you don’t owe taxes, it is advisable to file your tax return if you plan on getting a refund or want to be assessed for benefits such as the Canada Child Benefit or GST/HST Credit.
Read on to learn about the penalties for filing taxes late in Canada.
Tax Filing Deadline
The deadline to file your individual tax return is May 1, 2023. If you or your spouse are self-employed, the deadline to file your taxes is June 15, 2023.
- May 1, 2023: Individual tax returns are due
- June 15, 2023: Self-employed tax returns due
While sole proprietors get an extension until June 15th, all outstanding taxes must be paid by May 1 to avoid paying interest fees.
Penalties For Filing Your Taxes Late
The CRA does not take it lightly when you owe taxes, and filing your tax return late or not filing at all can cost you a lot of money.
Starting from day 1 after the deadline date (i.e. on May 3), compounding daily interest is levied on the outstanding amount.
The interest rate charged by the CRA may change every three months and is 7% for October 1, 2022, to December 31, 2022.
You could file your taxes on time and still pay interest fees if you have an outstanding balance. Interest applies as long as you owe taxes.
How about when you file your taxes late?
When you don’t meet the May 1 (individual return) or June 15 (self-employed return) deadline, a late-filing penalty applies.
The late-filing penalty is 7% of the income tax owing for the 2022 tax year plus an additional 1% of the balance for every month your return is late (for up to 12 months).
For example, if you owe $5,000 and end up filing your return in November (seven months late), your tax balance increases by 14% (i.e. 7% base penalty + 7% interest for 7 months).
The late filing penalty on your $5,000 initial debt is now $700. It doesn’t stop there, as interest is also charged on the penalty.
If you have made it a habit to file your taxes late, the late-filing penalty is more severe and is up to double the standard rate.
How To File A Late Tax Return in Canada
You can file your late tax return through the normal avenues, including:
1. Online Tax Software: Use CRA-certified tax software to complete your return and electronically transmit it to the CRA via NETFILE.
2. Accountant: You can hire an accountant to help you out or use a service like H&R Block that offers both online and in-person support.
3. Paper Filing: Tax-return form packages are available on the CRA website, including those for previous years.
CRA’s Voluntary Disclosures Program
If you have failed to declare income on your tax return or have made a false statement or omission, you may be able to get a penalty waiver if you voluntarily tell the CRA.
Depending on your circumstances, a Voluntary Disclosures Program application could also spare you from prosecution if it is accepted. This program has two streams: Income tax and GST/HST.
You will still be required to pay the taxes owed, including full or partial interest.
Taxpayer Relief Provisions
If you cannot pay your taxes or file on time due to ‘extraordinary circumstances’ outside of your control, you may qualify for interest or penalty waivers.
Examples of situations that may qualify include:
- Natural or man-made disasters
- Serious illness or accident
- Postal strike
- CRA errors or processing delays
- Extreme financial hardship
- Serious emotional or mental distress
Filing Tax Return Late When You Don’t Owe Taxes
If you don’t owe the CRA any money, there are no penalties for not filing or for filing a late return.
That said, you should still aim to file your return because CRA won’t send you a refund even if you qualify without a return.
Also, you could miss out on some government benefits, such as the Canada Child Benefit and GST credit.
The tax filing deadline is May 1, 2023, for most tax filers in Canada.
When you file your return using certified tax software, you can receive your refunds in as little as 2 weeks.
Some great tax software options include TurboTax, Wealthsimple Tax, and H&R Block.
Even if you cannot pay your full tax balance, you can avoid the late filing penalty by sending your return on or before May 1.