What Happens if You File Taxes Late in Canada?

For the 2022 tax year, most Canadian taxpayers have until May 1, 2023, to file their income taxes. (Self-employed tax returns must be filed before June 15, 2023, although any taxes owed must be paid by May 1st, 2023).

But what happens if you don’t file before the tax filing deadline? Let’s take a closer look at some different scenarios.

Scenario 1: You Don’t Have Taxes Owing

If you’ve missed the tax filing deadline but know you won’t have taxes owing, you don’t have to worry about incurring any penalties or interest. However, your income tax refund will be delayed as you must file a tax return to receive a refund.

In addition, you may be ineligible for some government benefits until you file your taxes. The federal government uses the information from your tax return to determine your payment amounts for the upcoming year. Examples include the GST/HST Benefit and the Canada Child Benefit (CCB). If you are due to receive any of these benefits, file your taxes to get your money at the scheduled time. 

Scenario 2: You Will Have Taxes Owing

If you miss the tax filing deadline and you will have taxes owing, the Canada Revenue Agency (CRA) will charge you interest on the amount paid late. In addition, you will be charged a late-filing penalty.

What Happens if I’m Penalized?

If you owe taxes but don’t file in time, you will be subject to two penalties: interest charges on the tax arrears and a late-filing penalty. Here’s how each one works:

How the Interest Charges Work: For the 2022 tax year, interest charges will begin to accrue on May 1st, 2023. The interest rate can change every three months, but between April 1, 2023, and June 30, 2023, the CRA has set the rate at 9% for overdue taxes. The interest is compounded daily.

How the Late Filing Penalty Works: If you will owe taxes but cannot afford to pay on time, you should still file your taxes before the deadline. If you don’t, you’ll be charged a late filing penalty of 5% of your 2022 balance owing, plus an additional 1% for every month until you file, up to a maximum of 12 months.

Scenario 3: Self-Employed with Taxes Owing

Self-employed individuals (sole proprietors, partnerships) must also pay any taxes owed before the filing deadline for personal tax returns (May 1st, 2023, for the 2022 tax year). However, their taxes don’t need to be filed until June 15th, 2023.

Your best bet is to file before May 1st to avoid any interest charges, but at least you won’t get a late filing penalty before June 15th. Many business owners pay their taxes in quarterly installments.

If you are self-employed but know you won’t owe taxes, you can wait until June 15th. But remember, the later you file, the greater the chance that benefits will be delayed.

How Are Tax Installments Treated?

Self-employed business owners with a net tax owing of more than $3000 (except Quebec) will likely need to pay in quarterly installments rather than yearly. The CRA sends out reminders well before the installment deadlines, but it’s always good to plan ahead to avoid paying late fees.

Here are the installment dates for most tax filers:

• March 15
• June 15
• September 15
• December 15

The CRA will charge interest at the prescribed rate (currently 9%) for all late installment payments. The interest is compounded daily, and the prescribed interest rate can change every three months.

How Can I Pay My Taxes?

There are a few ways you can pay any taxes you owe.

1. CRA My Account: If you’re set up with CRA My Account, you log in and pay the CRA directly, and the funds will be debited directly from your bank account.
2. Online Banking: Most Canadian financial institutions allow you to pay the CRA as an online banking bill payment, the same way you would pay your utility or cell phone bill.
3. In-Branch: If you don’t have access to online banking, you can always pay your taxes through a teller at your bank. Remember, your bank may need to see the CRA remittance slip to complete the transaction.

Can I Make Payment Arrangements?

If you owe taxes but can’t afford to pay the total amount in a single lump sum, the CRA will allow you to set up a series of payments or make payment arrangements. Here are the steps for each method:

Schedule a Series of Payments

1. Use the CRA’s personal income and expense worksheet to determine what you can afford to pay regularly.
2. Login to CRA My Account/My Business Account to view the different payment schedule options.
3. Schedule your payments and complete a PAD agreement.

Set Up a Payment Arrangement

1. Use the CRA’s personal income and expense worksheet to determine what you can afford to pay regularly.
2. Contact the CRA to set up a payment arrangement. You can use their automated service or speak with a live agent at 1 (888) 863-8657.
3. Make your first payment as arranged, and make all future payments on the agreed-upon dates. Note that all future tax returns will need to be filed on time.

Can I Have My Penalties or Interest Waived?

If you have incurred penalties or interest charges due to circumstances beyond your control, you can ask the CRA to consider waiving some or all of the charges. These decisions are made on a case-by-case basis, and deadlines are involved.

How to Avoid Late Tax Filing

Late tax filing is not something you want to make a habit of. It might not be as serious as tax evasion, but the CRA will still hit you with late filing penalties and compound daily interest charges if you owe money. With the current prescribed interest rate of 9%, tax debt is not the kind you want to accumulate.

Plan ahead to avoid filing taxes late or at the last second. Set aside the necessary tax slips as soon as you receive them, including T4s, RRSP contribution receipts, charitable donation receipts, etc. This way, everything will be easy to locate when it’s time to file.

You can easily file your taxes using online tax software programs like TurboTax and Wealthsimple Tax. These programs are NETFILE-certified, so your return can instantly be sent to the CRA for filing.

Lastly, if you can’t stand doing your own taxes, hiring a tax professional to complete your return may be worth the extra cost, especially if you have a more complex return.