In Canada, anyone that has paid income taxes during the year is required to file a tax return. This includes any taxes that have been paid by an employer on your behalf during the year, no matter how small the amount.
At the end of the year, your tax return calculates whether you have overpaid (refund owing) or underpaid (balance owing) the government based on your specific situation. CRA has the following penalties and taxes for late filing.
Penalties – If you have a balance owing: 5% of the outstanding balance plus 1% for each additional month late (to a max of 12 months). These percentages are doubled if you have filed late in any of the previous three years and will then apply to a maximum of 20 months.
Arrears Interest – If you have a balance owing: Interest is charged based on CRA’s prescribed rate and compounded daily starting form the due date. The prescribed rate can change quarterly and recently has been around 2% higher than the bank prime rate.
Instalment Interest – Self-employed individuals and corporations are often required to make instalment payments on a quarterly basis throughout the tax year. If an instalment deadline is missed, interest is charged based on CRA’s prescribed rate and compounded daily starting from the due date.
Refund Interest – With an overpayment of tax, CRA will typically pay your refund within a few weeks. In the event of late payment, CRA will pay you interest starting at the later of 45 after the due date or 45 days after the tax return has been filed. The rate of refund interest is a prescribed rate that is lower than for balances owing.
