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Late filing penalties for small business taxes

Last updated Feb. 16, 2021. 

While the federal government extended tax filing and payment deadlines in 2020 to provide some short-term relief to Canadians grappling with the pandemic, it’s unlikely they’ll extend them again in 2021.

Take note of the tax deadlines for 2021 so you don’t end up paying interest or penalties on late filing or payments.

Individual tax deadlines

Individual tax returns are typically due April 30 each year.

If you’re self-employed, or a sole proprietor, you need to file your tax returns by June 15. However, although you have extra time to file, if you have an amount owing it must be paid by the April 30th deadline to avoid interest and penalties.

Why do I need to file on time?

If you file after the due date, you’re considered a late filer and you could be charged a penalty. Now, you might be thinking: what if I don’t owe the CRA any money? Do I still have to file on time?

Think about this: after tax season, what if the CRA finds an extra slip you forgot to include in your tax return? Suddenly you owe money.

Since you filed late, you would be charged a late-filing penalty on top of the new balance. It’s good practice to always file your taxes on time.

Plus, if you miss the April 30th deadline to pay your taxes, you’re going to be on the hook for a penalty AND interest payments.

What if my business is incorporated?

Annual returns are due 6 months after the corporation’s fiscal year-end.

If your business is incorporated and has a balance that it still needs to pay, you have until 2 months after the end of your fiscal tax year to pay it off (2 months after year-end).

There are some exceptions to this rule. Canadian-controlled private corporations with annual business income less than $500,000 may have up to 3 months rather than 2 if they meet the eligibility criteria.

How much will I be penalized if I file my small business tax return late?

If you owe tax and you file your return late, the CRA will charge you a late-filing penalty.

The penalty is 5% of your balance owing, plus 1% of your balance owing for each full month your return is late, to a maximum of 12 months.

You will also be charged daily interest on any outstanding tax owing.

For example, if you were to owe the CRA $10,000, you would be initially charged a penalty of $500 for the first year.

The penalty may be higher if the CRA charged you a late-filing penalty on a return from any of the 3 previous years.

Featured Resource: Tax Preparation Toolkit for Small Business Owners

What are the penalties for false statements and/or omissions?

The CRA will charge a penalty if a corporation, either knowingly or under circumstances of gross negligence, makes a false statement or omission on a return.

The penalty is the greater of either $100 or 50% of the amount of understated tax.

What happens if I have repeatedly failed to report my income?

If you failed to report an amount on your return for the current tax year and you also failed to report an amount on your return from any of the previous 3 tax years, you may have to pay a larger penalty.

If you did not report an amount of income of $500 or more for a tax year, it will be considered a failure to report income.

The penalties are each equal to the lesser of:

  • 10% of the amount you failed to report on your return from a previous tax year
  • and 50% of the difference between the understated tax (and/or overstated credits) related to the amount you failed to report and the amount of tax withheld related to the amount you failed to report

However, if you voluntarily tell the CRA about an amount you failed to report, they may waive part of these penalties.

Click here for more information about the Voluntary Disclosures Program (VDP).

Stay on top of your tax deadlines and you won’t have to worry about interest and penalties.

Free Guide: Tax Preparation Toolkit for Small Business Owners

We know you’re dreading it, but it’s got to be done – and with a little preparation, you can fulfill your tax obligations without any stress. Our simple, easy-to-understand toolkit will teach you how to get organized for tax season. Download your free tax preparation toolkit to learn what information and key documents you need to prepare so you’re ready for the tax filing deadline. There’s even a printable checklist that lists all the documents you’ll need as a business owner, and tax write offs you shouldn’t miss out on. Get the prep out of the way so you can get back to running your business. Download your toolkit today.

Book a free consultation with FBC

FBC works with Canadian small business owners to minimize their income taxes and maximize their assets. We can help you stay on top of your record keeping, file your taxes on time and keep you caught up.

We offer tax planning, preparation and audit representation as well as bookkeeping and financial planning to cover your complete financial needs, all available year-round for one fee.

We assign a Local Tax Consultant to each FBC Member, who will come to your home or business, saving you time and money. By learning first-hand about the details of your business, we make sure you benefit from every potential tax savings opportunity available to you.

Interested in learning more? We’re offering a free consultation to explain how you can make sure you’re taking advantage of all the tax-saving opportunities available to you.