Repeated Failure to Report Income Penalty: How to Avoid and Appeal It – A Complete Guide by a Montreal CPA Firm Near You

Introduction

Many Canadians fall behind on filing their taxes—sometimes for one year, sometimes for ten. Whether due to financial hardship, fear, illness, business struggles, disorganization, or misunderstanding CRA rules, unfiled tax returns can create serious long-term consequences. The good news: it’s never too late to catch up, and CRA often provides structured ways to resolve old tax years without penalties or prosecution—if the situation is handled properly. This guide explains what happens when you don’t file taxes for years, what CRA can legally do, and how to catch up safely and strategically.

Legal and Regulatory Framework

Under the Income Tax Act and the Tax Administration Act (Quebec), every Canadian who earns taxable income must file a tax return. CRA can assess taxes even without a return by issuing an arbitrary or notional assessment. CRA also has authority to impose penalties, charge compound daily interest, seize assets, garnish wages, freeze bank accounts, and withhold benefits such as GST/HST credits or the Canada Child Benefit. There is no statute of limitations for unfiled returns—CRA can request filings going back decades.

Key Court Decisions

In McMillan v. Canada, the court upheld CRA’s right to arbitrarily assess unfiled years. In Nassif v. Canada, CRA’s collection actions were sustained even when the taxpayer had not filed for several years. In Bozzer v. Canada, the Federal Court of Appeal confirmed CRA can waive interest only within a 10-year window, emphasizing urgency in catching up. These cases show that ignoring unfiled tax returns does not protect taxpayers.

Consequences of Not Filing Taxes

1. CRA Can Issue Arbitrary Assessments

CRA estimates your income—often much higher than reality—and issues a tax bill with penalties and interest. You cannot fight these without filing the actual returns.

2. Loss of Refunds

If more than three years pass, you lose the right to claim refunds—even if you were entitled to them.

3. Loss of Benefits

CRA will suspend: GST/HST credits, CCB payments, disability tax credits, and provincial benefits until returns are filed.

4. Withholding of RRSP and Retirement Payments

CRA can seize refunds, GST credits, and even RRSP withdrawals to cover tax debt.

5. Wage Garnishment and Bank Freezes

CRA has the legal authority—without a court order—to garnish wages, freeze bank accounts, or seize assets.

6. Penalties and Daily Interest

CRA charges:

• 5% late filing + 1% per month (up to 12 months)

• 10% penalty + 2% per month for repeated late filing
  Compound daily interest applies until paid.

7. Increased Audit Risk

Unfiled returns create suspicion and may trigger audits of both past and future returns.

8. Criminal Tax Prosecution (Rare but Possible)

In extreme cases—usually involving tax evasion, fraud, or repeated refusals—CRA may pursue criminal charges. Filing voluntarily reduces this risk dramatically.

Why People Fall Behind on Taxes

Common reasons include: self-employment income with disorganized records, mental health challenges, addictions, illness, divorce, business failures, bookkeeping errors, fear of CRA, immigrant transition issues, death of a spouse, or simply not understanding obligations. CRA does not care why you fell behind—only that you fix it.

How to Catch Up Safely

1. Do NOT Contact CRA First

This is the biggest mistake people make. Once CRA contacts you or flags you, you lose access to penalty-reducing programs like the Voluntary Disclosures Program.

2. Gather All Slips Through CRA My Account

CRA stores most T4, T5, T3, RRSP, and other tax slips for the last 10+ years.

3. Reconstruct Missing Records

Bank statements, invoices, bookkeeping files, rental statements, crypto records, and expense documents must be rebuilt.

4. File All Returns at Once

A complete filing package shows cooperation, which helps with relief or negotiation.

5. Use the Voluntary Disclosures Program (VDP)

If you owe tax for unfiled years, VDP may:

• Eliminate penalties

• Reduce interest

• Provide a clean compliance restart
  VDP must be filed before CRA contacts you.

6. Negotiate a Payment Plan

CRA allows structured payment arrangements once filings are up to date.

7. Request Taxpayer Relief

If penalties and interest accumulated during illness, hardship, or personal crisis, CRA may cancel or reduce them.

Who Should Use the Voluntary Disclosures Program?

Anyone with unfiled returns who may owe money should use VDP. Examples: self-employed contractors, landlords, gig workers, commission agents, investors, new immigrants with foreign income, and anyone who received cash income. Filing outside VDP exposes you to full penalties.

Who Should NOT Use VDP?

Those who know all years will produce refunds only, or those fully compliant but missing one minor slip. These can be filed normally.

Mackisen Strategy

At Mackisen CPA Montreal, we help clients catch up safely, discreetly, and strategically. We reconstruct missing records, retrieve CRA slip data, prepare all unfiled returns, analyze tax exposure, determine eligibility for the Voluntary Disclosures Program, submit full VDP applications, negotiate payment plans, request penalty relief, and protect clients from collections and reassessments. Our system removes fear and restores full compliance.

Real Client Experience

A Montreal consultant behind 12 years in filings became fully compliant through our VDP application and avoided over $30,000 in penalties. A business owner with unreported rental income caught up safely after we rebuilt six years of records. A self-employed worker avoided wage garnishment after we filed missing returns and negotiated a payment arrangement. A new immigrant family recovered benefits withheld for years after catching up.

Common Questions

Will CRA forgive my tax debt? No—but they may forgive penalties/interest. Can I go to jail for unfiled taxes? Extremely rare if you file voluntarily. Can CRA take my bank money? Yes—if you ignore them. Should I file if I cannot pay? Yes—filing stops many penalties. Does filing late trigger an audit? Usually not—responsiveness reduces risk.

Why Mackisen

With more than 35 years of combined CPA experience, Mackisen CPA Montreal helps taxpayers catch up on years of unfiled returns safely, strategically, and confidentially. We protect you from penalties, collections, and fear—restoring full compliance with CRA.