One of the most common questions we hear from new corporate clients is what happens if they missed their T2 filing deadline. The answer is: it depends on whether you owe money, and CRA is not lenient about late filings.
The T2 Filing Deadline
Your T2 corporate tax return is due six months after your fiscal year end. If your corporation’s fiscal year ends on December 31, your T2 is due June 30 of the following year. If your year ends March 31, your T2 is due September 30.
The tax payment itself has a different deadline. For most CCPCs (Canadian Controlled Private Corporations), the balance of corporate tax owing is due two months after fiscal year end, or three months if you qualify for the small business deduction rate. This is earlier than the filing deadline.
Late Filing Penalty: The 5% Plus 1% Rule
If you file your T2 late and you owe a balance, CRA charges a late filing penalty of 5% of the balance owing, plus an additional 1% for each full month the return is late, up to 12 months. That is a maximum penalty of 17% on top of your outstanding balance.
Example: You owe $10,000 in corporate tax and file your T2 six months late. CRA charges you 5% + 6% = 11% of $10,000, which is $1,100 in penalties alone. Plus interest at 9% annually on both the balance and the penalty from the payment due date.
Repeated Late Filing
If CRA has issued a formal demand for your return and you have been late before, the penalty doubles. It becomes 10% of the balance owing, plus 2% per month up to 20 months. This can add up to 50% of your outstanding balance in penalties alone.
What If You Do Not Owe Any Tax?
If your corporation had no taxable income and you owe zero tax, there is no late filing penalty based on a percentage. However, you are still required to file the T2, and CRA may issue a demand letter if you do not. Ignoring a CRA demand for a return has its own consequences including potential prosecution in serious cases.
Interest on Late Payments
Separate from penalties, CRA charges compound daily interest on any unpaid corporate tax balance from the day it was due. The current CRA prescribed interest rate is 9% annually, and it compounds daily. On a $20,000 balance left unpaid for a full year, you are looking at approximately $1,800 in interest alone.
Voluntary Disclosure: If You Are Already Late
If you have unfiled T2 returns from previous years, CRA’s Voluntary Disclosures Program (VDP) allows you to come forward, file the late returns, and potentially have penalties waived. The key condition is that you must come forward before CRA contacts you. Once CRA has started an audit or sent a demand letter, VDP is no longer available.
If you have years of unfiled returns, act before CRA finds you. The outcome is significantly better when you initiate contact.
Behind on your T2 filings? We can help get you caught up. Book a free 20-minute intro call with Featherly.