CRA Late Filing Penalties for T2, T1 and GST/HST: The Formulas, With Worked Examples
How CRA calculates late filing penalties on T2, T1 and GST/HST returns, the repeat-offender rule, daily interest, and worked examples for small businesses.
For T2 and T1 returns, the CRA's late-filing penalty is 5% of the balance owing plus 1% for each full month late, up to 12 months. For GST/HST it's 1% of the amount owing plus 0.25% per full month, up to 12 months. If you owe nothing, there is generally no percentage penalty, but you still have to file. Repeat late filers can face double penalties.
The three formulas side by side
| Return | Basic penalty | Repeat penalty | Source |
|---|---|---|---|
| T2 corporate | 5% of unpaid tax + 1%/full month (max 12) | 10% + 2%/month (max 20) if a demand was issued and you were penalized in any of the previous 3 years | canada.ca, corporations |
| T1 personal (incl. T2125) | 5% of balance owing + 1%/full month (max 12) | 10% + 2%/month (max 20) under the same conditions | canada.ca, individuals |
| GST/HST | 1% of amount owing + 0.25% × full months late (max 12) | $250 failure-to-file penalty if you ignore a demand | canada.ca, GST/HST |
On top of every penalty, interest compounds daily at the CRA's prescribed rate, which changes each quarter, on both the tax and the penalties.
Worked example 1 (hypothetical): a T2 filed 7 months late
A corporation owes $20,000 for a year and files 7 full months after the due date. - 5% × $20,000 = $1,000 - 1% × $20,000 × 7 = $1,400 - Penalty: $2,400, plus daily interest on the tax from the balance-due date (not the filing date).
Worked example 2 (hypothetical): the repeat-offender trap
Same corporation, but last year it was also penalized and the CRA sent a demand to file. Now it's 10% + 2% × 7 = 24%, which is $4,800. This is why businesses that are several years behind should file in the right order and think about the Voluntary Disclosures Program before the CRA writes to them.
Worked example 3 (hypothetical): quarterly HST, 18 months late
$6,000 owing: 1% = $60, plus 0.25% × 12 (capped) = 3% = $180. Penalty: $240 plus interest. GST/HST penalties are smaller, but they hit every period, and quarterly filers who are three years behind have 12 of them.
What if a refund or no tax is owing?
There's no percentage penalty when nothing is owing. But a corporation that never files can still get a demand to file, an arbitrary assessment, and lose refunds and input tax credits to time limits.
Can the penalties be removed?
Sometimes. Before the CRA contacts you, a VDP application can bring relief. After penalties are charged, a taxpayer relief request can ask the CRA to cancel them for reasons like illness, disaster or CRA error. Our VDP and penalty relief page explains both.
The usual situation behind multi-year penalties
Most of the businesses we see weren't trying to avoid tax. The owner grew from a side business to a few million in revenue, the old accountant stopped answering, and the years piled up. The fix is the same either way: get the books done, file the oldest years first, and deal with relief at the same time. Sansar handles late business tax filing and the bookkeeping behind it for one all-inclusive flat rate, backed by our 100% Happiness Guarantee. See also our late tax filing page and the main-site guide on what happens when you file late.
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FAQ
Is there a penalty for filing a T2 late if I owe nothing? Not the percentage-based penalty, because it's calculated on unpaid tax. But you still have to file, and the CRA can demand the return or assess you arbitrarily.
Does the 1% per month keep going after 12 months? No. For the basic T2 and T1 penalty the monthly part stops at 12 months (20 months for the repeat penalty). Interest keeps compounding until you pay.
When does interest start on corporate tax? From the balance-due date, generally 2 or 3 months after year-end depending on the corporation, not from the filing deadline.
Are GST/HST late penalties per return? Yes. Each late reporting period has its own penalty, which is why several years of quarterly returns add up.
Can I get late filing penalties waived? Possibly, through the Voluntary Disclosures Program before the CRA contacts you, or a taxpayer relief request afterwards when the circumstances qualify.
Written by Gurdeep Sangha, founder of Sansar Solutions, a Vancouver-based bookkeeping and tax firm serving small businesses across Canada (mainly Ontario, Alberta and BC). Sansar is not a CPA firm; Notice to Reader and review engagements go through partner CPAs. This guide is general information, not tax or legal advice for your situation. Last reviewed: October 2026.