Filing corporate taxes is the responsibility of all corporations doing business in Canada. The Canada Revenue Agency (CRA) offers several tax benefits to compliant taxpayers who regularly pay and file taxes. Note that you can pay the tax in advance before filing tax returns.
Why Is It Important to File Tax Returns on Time?
There is a misconception that you don’t need to file tax returns if you don’t owe any taxes. The Income Tax Act requires all Canadian corporations, even those that are inactive or earn no income, to file a T2 Corporate Income Tax Return annually.
- The deadline for paying taxes is within two months after the end of your corporation’s fiscal year.
- The deadline for tax filing is within six months after the end of your corporation’s fiscal year.
If your business is facing a cash crunch to clear tax dues, at least file your tax returns on time, or before the deadline, to avoid the consequences of late filing.
You can approach the CRA to consider any arrangement to pay the tax liability over a period. You need to show your sincerity before making such a request by making a reasonable initial payment. Present evidence of your corporation’s financial situation and submit a proposal on how you intend to pay the remaining balance.
Tip: It is better to file taxes and make the request before the tax-filing deadline, as interest will accrue during the payment arrangement discussion.
What Are the Consequences of Late Tax Filing?
If you have already missed the tax deadline, you are going to face consequences. Where there are consequences, there are solutions too. At such times, do not panic, but don’t sit idle either. You need to act fast. Let’s go step by step in the escalation route. You can analyze which stage you are on and what you can do to address the issue.
Stage 1: Loss of Tax Credits and Deductions
Even if you have been making losses and have tax dues, you should file your returns on time. Otherwise, you will lose out on eligible business tax credits and deductions such as scientific research and experimental development (SR&ED) credits, input tax credits, and any refunds.
The CRA only gives tax benefits to compliant tax-filing companies. They have no obligation to process refunds for late submissions within the same timeframe as they do for timely submissions.
Stage 2: Late Tax Filing Penalty and Interest
Even if you are running late on tax filing, make sure you pay your tax dues.
- The CRA will impose a 5% late filing penalty on the unpaid tax.
- Moreover, it will charge a 1% interest every month you are late, up to a maximum of 12 months. This interest will compound daily at the prescribed interest rates, which the CRA updates quarterly.
Keeping the unpaid tax as low as possible or nil can help you avoid interest and penalties.
Stage 3: Repeated Late Filings
The matter escalates if the CRA issues a demand to file taxes within a specified period and you miss the deadline, or you are a repeat offender.
In such a scenario, the CRA will double your penalty to 10% of the unpaid tax and 2% interest for every month you are late for up to 20 months.
If there is no unpaid tax, there won’t be any financial penalty. However, repeated late filings can increase CRA scrutiny or trigger an audit.
What Should You Do If You Missed the Tax Filing Deadline?
The first step is to focus on filing corporate tax returns and paying the tax you calculated as soon as possible to stop interest from compounding daily.
If you find any minor errors in your returns, you can submit a T2 Adjustment Request specifying the changes. For substantial errors or omissions that could lead to non-compliance, proactively refile using the Voluntary Disclosures Program (VDP) before the CRA sends correspondence on the same. VDP can prevent the matter from escalating to penalties or legal notices.
You can also try to reduce the penalties and interest if your reason for missing the deadline is genuine:
- Extraordinary circumstances such as serious illness, natural disaster, or major software failure.
- Delay/Error from the CRA, such as service disruption, process delays, or incorrect information provided by CRA employees.
You have to submit Form RC4288 (Request for Taxpayer Relief) and support your case with comprehensive documentation. If your corporation has a good compliance history, your request is timely, and the CRA is convinced of your reason, it may waive penalties and interest. However, do not depend on a waive-off as it is CRA’s discretion whether to grant relief.
What Happens When You File Tax Returns After the Deadline?
Once you file the tax returns, the CRA will issue a Notice of Assessment (NOA), specifying your company’s
- Assessed income
- Deductions and credits allowed
- Calculated tax liability
- Penalties and interest applied
- Remaining balance (tax owed or refund)
Avoid missing out on NOA as the CRA will expect prompt payment of any balance amount owed. You can make a formal objection if you disagree with the calculation within 90 days from the receipt of NOA.
If you miss responding to NOA, the matter will escalate.
Note: The CRA has transitioned all business correspondence to online mail effective June 15, 2025. You may not get email notifications if your email is not updated or notifications are not activated. Log in to My Business Account and click on the mail icon to view your emails to avoid missing CRA’s correspondence.
Stage 4: Ignoring Payment Obligations
Failure to pay the balance tax owed will escalate the matter in the following manner. The CRA will:
- Send written reminders
- Send legal notices requiring immediate action
- Ask third parties (like clients and debtors) who owe money to the corporation to pay that amount to the CRA
- Seize and sell corporate assets, garnish bank accounts, freeze corporate accounts
- Take legal action against directors
The more the matter escalates, the more damage it will do to your business operations and reputation. At times like these, you will need legal aid.
What Should You Do to Prevent Legal Action
Remember, always respond to CRA’s communication within the specified time. Open communication with the CRA is the key to most problems. It shows you are sincere, and the mistake is genuine. Approaching the CRA voluntarily will not relieve you from interest and penalties, but it can avoid legal notice and audit.
If you missed the deadline once, avoid repeating the mistake by setting up internal controls. Consider hiring a dedicated person or team to handle tax filing deadlines. You could also outsource your tax filing to a professional tax consultant.
Contact Ford Keast LLP in London to Help You File Your Late Corporate Taxes
A skilled tax expert will set up the entire process for timely tax filing and payment and conduct periodic checks to ensure compliance with changing tax laws. At Ford Keast LLP, our tax consultants provide services that include tax filing and responding to the CRA’s correspondence in a timely and compliant manner. To learn more about how Ford Keast LLP can provide you with the best accounting and tax expertise, contact us online or call us at 519-679-9330.
