Late filing penalties for small business taxes

a man rubs his forehead and is looking down at his taxes, stressed about late filing

Late filing penalties for small business taxes

Last updated July 28, 2020. We will update blog posts when more information is released.

It's a tough time for business owners grappling with the COVID-19 pandemic. To provide some short relief during this time, the federal government extended tax filing and payment deadlines.

Individual tax returns are typically due April 30 each year. The new filing deadline for individuals is June 1, and the new payment deadline is September 30.

If you’re self-employed, or a sole proprietor, your deadline hasn’t changed. You still need to file your tax returns by June 15.

No matter what the deadlines are, it's still important to file on time, and pay on time.

Watch our video for a summary of the announcement:

Why do I need to file on time?

Even if you wait until September 30 to pay what you owe, you still need to file your taxes by June 1 or June 15 if you’re self-employed.

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 September 30 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?

The CRA will allow all businesses to defer filing their T2 corporation income tax returns otherwise due in June, July or August, to September 1, 2020.

If your corporation has a year-end of September 18th to December 30th, you now have until September 1, 2020 to file.

If you’re self-employed, or a sole proprietor, your deadline hasn’t changed. You still need to file your tax returns by June 15.

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

If you owe tax for 2019 and you file your return late, the CRA will charge you a late-filing penalty.

The penalty is 5% of your 2019 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.

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 2019 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 for 2018
  • 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.

Book an appointment 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.


People have also enjoyed other articles related to these topics:

  1. Bookkeeping
  2. Financial Planning, Small Business Taxes, Tax Preparation