The CRA Late-Filing Penalty Costs 5% on Day One. Interest Is the Cheap Half
The CRA late-filing penalty is 5% of the tax you still owed on the day your return was due, and it lands the first day that return is late. Not after a month. Not after a reminder. At the 7% CRA charges on overdue tax in the fourth quarter of 2026, that single day of lateness costs the same as 254 days of interest, or 0.70 of a year. Data as of 6 November 2026.
That is the shape of the whole thing. Interest is a rate, so it costs what the calendar says it costs. The penalty is a toll, and you pay the toll in full at the gate.
A second feature of the rule is less well known and more practically useful. The penalty is a percentage of the tax that was unpaid when the return was required to be filed. Pay what you owe by the deadline and file late, and the penalty is nil. File on time and pay nothing, and you owe interest but no penalty. Only the combination is punished.
The statute charges two things, and only one of them counts time
From section 162 of the Income Tax Act on Justice Laws, current to 19 October 2026 and last amended 18 June 2026:
Every person who fails to file a return of income for a taxation year as and when required by subsection 150(1) is liable to a penalty equal to the total of (a) an amount equal to 5% of the person’s tax payable under this Part for the year that was unpaid when the return was required to be filed, and (b) the product obtained when 1% of the person’s tax payable under this Part for the year that was unpaid when the return was required to be filed is multiplied by the number of complete months, not exceeding 12, from the date on which the return was required to be filed to the date on which the return was filed.
Three features of that wording do the work.
The base. Both paragraphs are percentages of one figure: “the person’s tax payable under this Part for the year that was unpaid when the return was required to be filed”. What was outstanding on the filing deadline.
Paragraph (a) carries no time element. There is no month in it and nothing to prorate. It is 5% of that base the moment the return is late, the same 5% a day late as a year late.
“Complete months”, capped at 12. Paragraph (b) is the only part that counts time, and it counts whole months. A return filed 29 May after an April 30 deadline is twenty-nine days late, which is zero complete months, so it attracts the 5% and nothing more. The next day it attracts 6%. Paragraph (b) stops at twelve, putting the s.162(1) ceiling at 17%.
That clock is already a long way into its run on a 2025 return that has not gone in. For a filer on the April 30 deadline, the 2025 filing due date and balance-due day were both 30 April 2026, so as at 6 November 2026 the return is 190 days outstanding and six complete months late: s.162(1) stands at 11% of the unpaid base, and the seventh complete month lands on 30 November 2026, taking it to 12%. CRA’s own quarterly announcements put the rate charged on overdue tax at 7% in the second, third and fourth quarters of 2026, so a flat 7% covers the whole period, and on an $8,000 unpaid base that is $880.00 of penalty plus $296.85 of interest as at 6 November 2026, with the 30 November step adding $80.00.
A balance can be puzzling if you are an employee whose tax comes off every paycheque. One source is income nobody withheld on, which our guide to how investment income is taxed in Canada covers.
Interest runs from a different date and compounds daily
Interest is a separate charge under a separate provision. Under section 161 of the Act, a taxpayer with an unpaid balance “shall pay to the Receiver General interest at the prescribed rate on the excess, computed for the period during which that excess is outstanding”, running from any time after the balance-due day.
The balance-due day is not the filing deadline, and that matters further down. Section 248(1) sets it at “April 30 in the following taxation year” under paragraph (c) of its definition, which reaches an individual “in any other case”, and s.248(11) makes the interest compound daily, with interest left unpaid compounding in turn. The other case is death: where the taxpayer is “an individual who died after October in the year and before May in the following taxation year”, paragraph (b) of that same definition moves the balance-due day to “the day that is 6 months after the day of death”, and paragraph 150(1)(b), which runs on its own wider trigger of an individual who dies “after October of the year and on or before the day that would be the individual’s filing due date for the year if the individual had not died”, gives the legal representatives until the later of the day the return would otherwise be due and that same six-month day to file it. The two gates are not the same, so a June 15 filer who dies on 20 May gets the filing extension without the balance-due day moving.
The penalty carries interest too, from earlier than most people expect. Under s.161(11)(a)(i), a s.162 penalty is payable with interest at the prescribed rate computed “from the day on or before which the taxpayer’s return of income … was required to be filed … to the day of payment”. It compounds from your filing due date, not from the day CRA assesses it.
CRA published 7% on overdue taxes for the fourth quarter of 2026. Regulation 4301 ties each quarter to treasury bill auctions already held, and on our derivation it works out to 7% again for the first quarter of 2027, a figure CRA has not yet published. The derivation is in our piece on the CRA prescribed interest rates for the first quarter of 2027.
What each statutory percentage costs, measured in days of interest
The clearest way to see the size of the penalty is to price it in the currency of the other charge. At 7% compounded daily on a 365-day basis, this is how many days of interest each statutory percentage buys.
| Statutory charge | Equals this many days of interest |
|---|---|
| The 5% that opens s.162(1) | 254 days (0.70 years) |
| Each further complete month, 1% | 52 days (precisely 51.89) |
| The s.162(1) maximum, 17% | 819 days (2.24 years) |
| The 10% that opens s.162(2) | 497 days (1.36 years) |
| Each further complete month under s.162(2), 2% | 103 days |
| The s.162(2) maximum, 50% | 2,114 days (5.79 years) |
Every row holds the rate fixed at the current 7%, which makes each one an equivalence at today’s rate rather than a projection, because CRA resets the rate quarterly: its own page says the agency’s “interest rates can change every three months based on the prescribed interest rates”. One complete month of penalty costs 1.71 times one month of interest. The penalty clock runs about seventy per cent faster, and that is before the 5% charged for being late at all.
The total charge as a share of the balance, by months late
Put the two clocks together. This is the total charge as a percentage of the balance for a return filed and paid on the same day, so the only difference between the columns is whether the return went in on time. The penalty columns include interest on the penalty.
| Complete months late | Filed on time, paid late | Filed late, first failure | Filed late, repeat failure |
|---|---|---|---|
| 0 (less than one complete month) | 0.00% | 5.00% | 10.00% |
| 1 | 0.59% | 6.62% | 12.66% |
| 3 | 1.77% | 9.91% | 18.05% |
| 6 | 3.56% | 14.95% | 26.35% |
| 12 | 7.25% | 25.48% | 43.72% |
| 20 | 12.37% | 31.48% | 68.56% |
The interest in those columns is priced on months converted to days at 365/12, which is what makes the twelve-month row exact at 365 days.
The first row is a return that is already late with zero days elapsed, which is why its interest column is zero. One day past the deadline, interest at 7% compounded daily is 0.019178% of the balance, or $1.53 on $8,000, while the 5% has already landed in full.
At twelve months a first failure costs 25.48% against 7.25% for interest alone. At twenty months that penalty has been capped at 17% for eight months and only the interest is still growing, while the repeat-failure charge is capped at 50% and reaches the cap exactly at twenty.
An $8,000 balance, filed and paid 138 days after the deadline
Take an illustrative 2026 return with a balance owing of $8,000. Both the balance-due day and the filing due date are 30 April 2027. The return goes in and the balance is paid on 15 September 2027: 138 days outstanding, four complete months late.
| Filed 30 April, paid 15 September | Filed and paid 15 September | |
|---|---|---|
| Interest on the balance, s.161(1) | $214.53 | $214.53 |
| Penalty, s.162(1) | nil | $720.00 (9% of $8,000) |
| Interest on the penalty, s.161(11)(a)(i), over the same 138 days | nil | $19.31 |
| Total | $214.53 | $953.84 |
The payment date is identical in both columns. The money leaves on 15 September either way. Filing on time and paying late costs $214.53. Filing late costs $953.84. The difference is $739.31. That $739.31 is 3.45 times the interest and 9.24% of the balance.
Section 161(11) runs interest on the penalty to the day the penalty is paid, so the $19.31 is what that line comes to over the same 138 days, and it is a floor if the penalty is paid later than that.
A part payment by the deadline changes the base itself. Because both limbs are percentages of that unpaid figure, money paid on or before 30 April cuts the 5% and every 1% month in the same proportion, and it cuts the s.161(1) interest with them. Every limb is linear in the base, so paying half the bill by the deadline halves the penalty exactly: $360.00 against $720.00.
| Paid by 30 April | Unpaid base | Penalty at 9% | Interest on the balance | Total |
|---|---|---|---|---|
| $0.00 | $8,000.00 | $720.00 | $214.53 | $953.84 |
| $2,000.00 | $6,000.00 | $540.00 | $160.90 | $715.38 |
| $4,000.00 | $4,000.00 | $360.00 | $107.27 | $476.92 |
| $5,000.00 | $3,000.00 | $270.00 | $80.45 | $357.69 |
| $6,000.00 | $2,000.00 | $180.00 | $53.63 | $238.46 |
| $8,000.00 | $0.00 | $0.00 | $0.00 | $0.00 |
Same facts, filed and the rest paid 15 September. Each total also includes interest on the penalty, which is why it runs a few dollars above the penalty plus the balance interest shown beside it. The last row is the one the table exists to reach: pay the $8,000 by 30 April and file in September, and every column is zero.
A balance owing can have a sequel the following year, in the instalment regime, and it takes more than one heavy year to get there. Section 156.1(2)(b) switches sections 155 and 156 off where an individual’s “net tax owing for the particular year, or for each of the 2 preceding taxation years, does not exceed the individual’s instalment threshold for that year”, so instalments reach a person only where net tax owing runs over the threshold in the current year and in at least one of the two years before it. One large year on its own pulls nobody in. The second one is what does it. The threshold is $3,000, or $1,800 for an individual resident in the Province of Quebec at the end of the year, and net tax owing is a defined term with its own formula in s.156.1(1) rather than the balance owing in the table above. Missing an instalment due date can bring instalment interest, and CRA says it “applies the instalment penalty only if instalment interest for 2026 is more than $1,000”. Our piece on how a capital gain triggers CRA tax instalments works through that two-year test.
The repeat-failure charge needs all three conditions
The 10% version of the penalty, s.162(2), applies only where all three of these are true:
- The person fails to file as required by s.150(1);
- A demand for a return for the year has been sent under subsection 150(2);
- A penalty under s.162(2) or s.162(1) was payable by the person, before the time of failure, in respect of a return of income for any of the three preceding taxation years.
Miss one and the charge stays at s.162(1). Where all three are met, the penalty is 10% of the same base plus 2% per complete month to a maximum of 20 months, which is the 50% ceiling above. On the $8,000 example at four complete months, that is 18% of the balance, or $1,440.00, plus $38.62 of interest on the penalty and the same $214.53 of s.161(1) interest on the balance as the first-failure column, for $1,693.15.
CRA puts the same test in its own words. Its late-filing penalty page, written for the 2025 return, gives the charge as “10% of your 2025 balance owing, plus 2% of your 2025 balance owing for each full month late (up to 20 months) if you were penalized in 2022, 2023, or 2024 and received a demand to file”. The demand is in CRA’s sentence as well.
Section 162 charges per taxation year, since s.162(1) opens on a person “who fails to file a return of income for a taxation year”, so somebody three years behind is not facing one penalty but one for each of those years. That stacking is also the route the wording creates into the 10% charge rather than something reserved for the habitually delinquent, because a penalty payable under s.162(1) for one year is what satisfies condition 3 for each of the next three, and where CRA has also sent a demand under s.150(2) for one of those later years, both remaining conditions are met and that year is charged at 10% plus 2% a month instead of 5% plus 1%.
Self-employed filers file by June 15 and pay by April 30
This split catches people, and it comes from two provisions that do not line up. Section 150(1)(d) sets the filing deadline, for any person its earlier paragraphs do not reach, at “the following April 30”, and at “the following June 15” for “an individual who carried on a business in the year”, unless the business expenditures were primarily the cost or capital cost of tax shelter investments, and for that individual’s cohabiting spouse or common-law partner. The balance-due day does not move with it. Paragraph (c) of the s.248(1) definition, the one that governs an individual in any other case, fixes it at “April 30 in the following taxation year”, and s.156.1(4) is the provision that requires the payment: every individual shall, on or before that balance-due day, pay the tax payable for the year less amounts deducted or withheld under section 153 and less all other amounts already paid on account of it. Those two subtractions are the quiet good news in the subsection, because they come off before anything is owing: an employee’s source deductions and any instalments already sent to the Receiver General have already shrunk the figure the 5% and every 1% month are struck on. The June 15 date in s.150(1)(d)(ii) is a filing deadline only.
So interest starts on 1 May while the return is not due until 15 June. On an $8,000 balance, the 46 days between them cost $70.88.
The penalty follows the filing deadline instead, which produces a result worth knowing. Pay the $8,000 in full on 15 June and file on 20 August, and nothing was unpaid when the return was required to be filed, so the base is nil and the s.162(1) penalty is $0.00 despite two complete months of lateness. Pay nothing and file on 20 August, and those same two complete months after 15 June make the penalty 7% of $8,000, or $560.00, on top of $173.68 of interest over the 112 days from 1 May.
Neither of those last two figures is deductible in computing the income from the business that produced the balance, because that computation is precisely the one the prohibition is written for: section 18(1) opens “In computing the income of a taxpayer from a business or property no deduction shall be made in respect of”, and its paragraph (t) puts on that list “any amount paid or payable … under this Act (other than tax paid or payable under Part XII.2 or Part XII.6)”, which is what the $560.00 penalty and the $173.68 of interest both are.
The next-business-day grace applies only when the due date falls on a weekend or holiday
One timing detail turns on the calendar rather than on the filer, and it is narrower than it is usually repeated to be. CRA sets it out under its own heading, “Exception to the due date”: “When a due date falls on a Saturday, Sunday, or public holiday recognized by the CRA, your return is considered on time if the CRA receives it, or if it is postmarked, on or before the next business day.” The payment side follows in the next sentence: “Your payment is considered on time if it is received on the first business day after the due date.”
Read that condition the other way and a deadline falling midweek carries no next-business-day grace at all, which is an inference from the words rather than something CRA states. What CRA does state generally is the exception itself, printed on its page of filing due dates for the 2025 tax return directly below the section that sets out the April 30 filing date, the June 15 date for a business filer and the April 30 payment date. It reaches every deadline in this piece, filing dates and balance-due day alike.
A nil balance produces a nil penalty, and filing late still costs something
Both limbs of s.162(1) are percentages of the tax unpaid at the filing deadline, so where that figure is nil, 5% of nil and 1% of nil are both nil, for any number of complete months, including past the cap at twelve. The same base appears in s.162(2)(d) and (e), so even a repeat failure on a nil balance produces nothing. Section 150(1.1)(b) goes further, though only as far as subsection (1): for an individual who was resident in Canada at any time in the year, it disapplies the s.150(1) obligation to file unless tax is payable for the year, or the individual has a taxable capital gain or disposes of capital property in the year, or the Home Buyers’ Plan or Lifelong Learning Plan balance at the end of the year is positive. An individual non-resident throughout the year falls under the limb after it, on its own test. A demand sent under s.150(2) creates the obligation regardless, since that subsection applies “whether or not the person is liable to pay tax under this Part”.
None of that makes filing late free. CRA’s own sentence puts the rest of the cost plainly: “If you file after the due date and owe tax, you will be charged a late-filing penalty. Filing late can also delay your benefit and credit payments.” The penalty is about the money. The benefits are a separate cost, and CRA names three of the payments that filing on or before the due date prevents a disruption to: the GST/HST credit, including any related provincial or territorial credits, the Canada child benefit, including related provincial or territorial payments, and Old Age Security benefits.
Which is why the practical conclusion sits under its own heading on CRA’s late-filing penalty page, “File on time even if you cannot pay”: “If you cannot pay your balance owing by the return due date, file on time to avoid being charged a late-filing penalty.”
For someone whose deadline has already gone by, the two limbs of s.162(1) part company. Paragraph (a) is out of the reach of a payment, because its base is measured at a date that has passed: it is the tax that was unpaid when the return was required to be filed, so money sent today cannot move it and the 5% has already landed in full. Paragraph (b), though, counts complete months to the date on which the return is filed, so filing today is what stops the next 1%, up to the point where the cap at twelve months stops it anyway or a waiver under s.220(3.1) cancels all or part of what has accrued.
Relief is discretionary and the average wait is about sixteen months
There is a relief provision, and it is worth knowing its shape before relying on it. Under section 220(3.1), the Minister “may, on or before the day that is ten calendar years after the end of a taxation year of a taxpayer … or on application by the taxpayer … on or before that day, waive or cancel all or any portion of any penalty or interest otherwise payable”. The verb is “may”. It is a discretion, not an entitlement, and CRA frames eligibility around “when events beyond your control prevent you from meeting your tax obligations”.
CRA states the same window in plainer words on its late-filing penalty page, dated 20 January 2026: “Requests must be submitted within a 10-year period ending in the calendar year the request is made.” Its separate page on cancelling or waiving penalties and interest, dated 25 September 2026 and retrieved on 6 November 2026, adds a figure that is easy to miss. CRA says there that it is “currently experiencing a significant increase in the number of taxpayer relief requests received”, that processing times are longer than usual, and that “the current average processing time is approximately 16 months”, while adding that a request “may take less or more time” depending on factors such as its complexity, the number of tax years involved, the number of tax programs affected, and how complete the supporting documentation is. Sixteen months of interest compounding daily on both the balance and the penalty is the backdrop to any request, which is reason enough to treat the request itself as a last resort rather than a plan, and to read CRA’s page on cancelling or waiving penalties and interest before making one.
If there is a balance you cannot cover, the expensive half of the problem is the paperwork, not the money. On the $8,000 example, interest over the 138 days is $214.53. Sending the return in on time, on identical facts, saves $739.31.
Disclaimer: The content on bestcanadianstocks.ca is for informational and entertainment purposes only and does not constitute financial advice. Past performance is not indicative of future results. Always consult a qualified financial advisor before making investment decisions. The penalty is Income Tax Act s.162, Justice Laws, Act current to October 19, 2026 and last amended June 18, 2026. Subsection 162(1) is 5% of the person’s tax payable for the year that was unpaid when the return was required to be filed, plus 1% of that same figure for each complete month, not exceeding 12. Subsection 162(2) is 10% plus 2% a month to a cap of 20 months, and it applies only where the person failed to file, a demand for the return was sent under s.150(2), and a penalty under s.162(1) or s.162(2) was payable before the time of failure in respect of a return of income for any of the 3 preceding taxation years. Filing due dates are s.150(1)(d)(i), April 30, and s.150(1)(d)(ii), June 15 for an individual who carried on a business in the year and for a cohabiting spouse or common-law partner of such an individual. The balance-due day is paragraph (c) of the s.248(1) definition, April 30 in the following taxation year, which governs an individual in any other case; paragraph (b) of the same definition moves it for an individual who died after October in the year and before May in the following taxation year, and s.150(1)(b) runs on its own wider trigger. Section 156.1(4) requires the payment by the balance-due day, net of amounts withheld under s.153 and of anything already paid on account. Interest on an unpaid balance is s.161(1), running only after the balance-due day; interest on a s.162 penalty is s.161(11)(a)(i), running from the day the return was required to be filed to the day of payment; both are compounded daily by s.248(11), which also compounds unpaid interest. Section 18(1) bars a deduction, in computing the income of a taxpayer from a business or property, for an amount paid or payable under the Act other than tax under Part XII.2 or Part XII.6, paragraph 18(1)(t). The rate charged on overdue tax was 7% in the second, third and fourth quarters of 2026 on CRA’s own quarterly announcements for those quarters, and Regulation 4301 produces the same 7% for the first quarter of 2027 on the derivation this site published on November 5, 2026, which CRA has not yet published. The weekend-and-holiday exception, which applies only where a due date falls on a Saturday, Sunday or public holiday recognized by CRA, and the three benefit and credit payments a late return can disrupt, the GST/HST credit, the Canada child benefit and Old Age Security, are from CRA’s Filing due dates for the 2025 tax return page, canada.ca page dated January 20, 2026, retrieved November 6, 2026. CRA’s plain-language statement of the penalty, its sentence that filing late can delay benefit and credit payments, its heading ‘File on time even if you cannot pay’, and the ten-calendar-year relief window are from CRA’s Late-filing penalty page, canada.ca page dated January 20, 2026 and written for the 2025 return, retrieved November 6, 2026. The approximately 16-month average processing time for a taxpayer relief request, and CRA’s own statement that a request may take less or more time, are from CRA’s Cancel or waive penalties and interest page, canada.ca page dated September 25, 2026, retrieved November 6, 2026; the waiver power itself is s.220(3.1). The instalment test is s.156.1(2)(b), which requires net tax owing to exceed the instalment threshold in the particular year and in at least one of the two preceding years, the threshold being $3,000, or $1,800 for an individual resident in Quebec at the end of the year. All dollar amounts, percentage totals and day equivalences are our arithmetic, compounding daily at 7% on a 365-day basis, from a single engine that both charts import so a chart cannot disagree with the article. Its compounding convention is fixed by a control test reproducing to the cent the $362.50 and $256.34 figures this site published on November 5, 2026, and its complete-months counter passes nine dated cases against the s.162(1)(b) wording, including that 29 days late is zero complete months and that April 30 to February 28 is nine complete months rather than ten.
