CRA Tax Penalties Explained: Late Filing, Late Payment, and More – A Complete Guide by a Montreal CPA Firm Near You

Introduction

CRA imposes a wide range of tax penalties that can quickly turn a simple filing oversight into an expensive problem. Whether you missed the filing deadline, underreported income, claimed ineligible deductions, or made mistakes in GST/HST or payroll, CRA penalties can add up to thousands—and in some cases, tens of thousands—of dollars. Understanding these penalties is essential for avoiding them, disputing them, or requesting relief. This guide explains every major CRA penalty, how they are calculated, and what you can do to reduce or eliminate them.

Legal and Regulatory Framework

CRA penalties are governed by the Income Tax Act, Excise Tax Act (GST/HST), and Tax Administration Act (Quebec). CRA has broad authority to assess penalties for: late filing, late payment, repeated failures to report income, false statements, gross negligence, unremitted payroll taxes, unfiled GST/HST returns, and improper bookkeeping. Penalties apply to individuals, corporations, trusts, and GST/HST registrants. CRA may also charge compounding daily interest on unpaid amounts, further increasing the cost of non-compliance.

Key Court Decisions

In Guindon v. Canada, the Supreme Court upheld penalties for false statements and stressed the importance of accuracy. In Brooks v. Canada, penalties for unreported cash income were sustained due to lack of documentation. In Whitford v. Canada, the court confirmed CRA’s authority to impose repeated failure penalties even when omissions were unintentional. These cases highlight CRA’s strict enforcement approach.

Major Types of CRA Penalties

1. Late Filing Penalty

If you file your return after the deadline and owe tax, CRA charges:

• 5% of the balance owing, plus

• 1% per month for up to 12 months.
  If you have a repeated late-filing penalty within the past 3 years, the penalty increases to:

• 10% of the balance owing, plus

• 2% per month for up to 20 months.

2. Late Payment Penalty

CRA does not charge a “late payment penalty” per se, but interest accumulates daily on unpaid tax starting the day after the due date.

3. Repeated Failure to Report Income Penalty

If you fail to report income in the current year and failed to report in any of the previous 3 years, CRA charges the lesser of:

• 10% of the amount not reported, or

• A penalty based on the federal/provincial tax payable on that income.
  This penalty often surprises gig workers, investors, and self-employed individuals.

4. Gross Negligence Penalty

This is one of the most serious penalties. CRA may impose a penalty of:

• 50% of the understated tax, plus

• 50% of overstated credits or refunds.
  Applied when CRA believes there was intentional or reckless disregard of tax law. Even “careless” bookkeeping can sometimes trigger this penalty.

5. False Statement or Omission Penalty

If CRA believes you knowingly or negligently omitted information, the penalty can be up to $100 per omission or $100 per slip.

6. GST/HST Penalties

GST/HST penalties apply to:

• Late filing: 1% of GST owing + 0.25% per month

• Repeated late filing penalties

• Failure to remit collected tax

• Gross negligence on GST accounts

• Missing or improper ITC documentation

• Incorrect place-of-supply calculations
  GST/HST audits often generate significant penalties when registrants misinterpret tax rules.

7. Payroll and Source Deduction Penalties

Employers face steep penalties for late or missing source deductions:

• 3% for 1–3 days late

• 5% for 4–5 days late

• 7% for 6–7 days late

• 10% for 7+ days late or repeated failures
  Repeated failures may trigger a 20% penalty.

8. Penalties for Not Filing Information Returns

Penalties apply for late T4s, T5s, NR4s, or other slips:

• $10–$250 per day depending on size

• Up to a maximum of $2,500 to $25,000 depending on the slip type
  CRA is strict with corporations issuing T-slips.

9. Penalties for Undeclared Foreign Income and Assets

Missing T1135 filings trigger penalties starting at $2,500 per year, plus gross negligence penalties up to $12,000 or more.

10. Penalties for Tax Avoidance Schemes

Tax shelter promoters and participants may face penalties for:

• False donation schemes

• Abusive tax shelters

• Offshore tax evasion
  Penalties can exceed 100% of the disallowed tax benefit.

Interest Charges (Separate From Penalties)

CRA charges compound daily interest on: unpaid balances, penalties, GST/HST, payroll source deductions, and installment arrears. Interest cannot be appealed but can be waived under Taxpayer Relief.

How to Reduce or Eliminate CRA Penalties

Options include: filing immediately even if you cannot pay, requesting Taxpayer Relief, filing a Notice of Objection, disputing gross negligence penalties, providing missing documentation, entering into payment arrangements, correcting errors through the Voluntary Disclosures Program, and improving bookkeeping and compliance.

Mackisen Strategy

At Mackisen CPA Montreal, we help clients reduce or eliminate penalties through strong objections, Taxpayer Relief applications, corrected filings, GST/HST defense, payroll compliance plans, and CRA negotiation. We identify errors in CRA assessments, prepare factual and legal arguments, and defend clients during reviews or appeals.

Real Client Experience

A Montreal contractor avoided gross negligence penalties after we proved reasonable care. A business owner reduced GST/HST penalties by 80% through Taxpayer Relief. A freelancer reversed repeated failure penalties after CRA accepted corrected slips. A corporation avoided late T4 penalties through our proactive compliance plan.

Common Questions

Can CRA waive penalties? Yes—under Taxpayer Relief. Do penalties apply if I’m owed a refund? No—late filing penalties apply only when you owe tax. Can penalties be appealed? Yes—through objections. Does CRA negotiate penalties? Only under specific rules.

Why Mackisen

With more than 35 years of combined CPA experience, Mackisen CPA Montreal ensures penalties are minimized or eliminated through expert negotiation, appeals, and compliance guidance. We protect your finances and help you stay in good standing with CRA.