What is the CRA late filing penalty?
The CRA late filing penalty is 5% of your balance owing on the due date, plus 1% of the balance for each complete month the return is late, up to a maximum of 12 months (total maximum: 17% of balance owing). For a taxpayer who was penalized for late filing in any of the previous 3 years, the penalties double: 10% base + 2% per month for up to 20 months. The penalty applies even if you cannot pay — filing on time avoids the penalty even if you owe money you cannot pay.
What is the CRA Voluntary Disclosure Program?
The CRA Voluntary Disclosure Program (VDP) allows taxpayers to correct inaccurate or incomplete tax returns and disclose unreported income before CRA contacts them. If your application is accepted, CRA will grant relief from prosecution, cancel or waive penalties, and may partially reduce interest. The disclosure must be voluntary (before CRA initiates an audit or inquiry), complete (all years and all issues), and must include payment of the estimated tax owing. A tax lawyer can help structure the application.
Can CRA waive late filing penalties?
Yes, under the Taxpayer Relief provisions (Income Tax Act section 220(3.1)), CRA can cancel or waive interest and penalties if the late filing resulted from: extraordinary circumstances (natural disaster, serious illness, accident), CRA errors, financial hardship (CRA can reduce accumulated interest if the taxpayer is experiencing severe financial hardship), or inability to file due to reasons beyond your control. Applications are made on CRA Form RC4288. A tax lawyer can improve the success rate of relief applications.