CRA charges a late-filing penalty of 5% of the unpaid tax due on the filing deadline, plus 1% for each complete month the T2 return is late, up to a maximum of 12 months. (Penalties for failing to file a T2 return) The penalty doubles to 10% plus 2% per month (maximum 20 months) when CRA has issued a demand to file and the corporation was charged a failure-to-file penalty in any of the 3 preceding tax years. The filing deadline is 6 months after the tax year-end, while the payment deadline is usually 2 months after year-end.
Key takeaways:
- Late-filing penalty applies when the return is filed after the deadline, and unpaid tax is due on the filing deadline
- The filing deadline is 6 months after the tax year-end
- Balance-due day is 2 months after year-end (or 3 months for eligible CCPCs)
- Interest is separate from penalties and is compounded daily
- E-filing is required for tax years starting after 2023, with a $1,000 penalty for non-compliance
The standard CRA late-filing penalty for a corporate (T2) return
CRA charges a late-filing penalty of 5% of the unpaid tax due on the filing deadline, plus 1% of this unpaid tax for each complete month the return is late, to a maximum of 12 months.
A “complete month” means full calendar months from the filing deadline. The penalty is calculated only when unpaid tax exists at the time of filing. Corporations with $0 unpaid tax face a $0 penalty. The 12-month maximum means the penalty caps at 17% of unpaid tax (5% base + 12 months × 1%).
What does “unpaid tax due on the filing deadline” mean?
Unpaid tax due on the filing deadline is the corporation income tax balance that remains unpaid 6 months after the tax year-end.
Unpaid tax equals tax payable minus instalments paid and credits applied. Corporations that paid instalments fully covering the tax liability have $0 unpaid tax at the filing deadline, yielding a $0 penalty even when the return is filed late. The T2 filing deadline is six months after your tax year-end, which differs from the balance-due day when payment is required.
Worked example (standard penalty)
A corporation with $10,000 in unpaid tax that files 4 complete months late faces a penalty of $900.
Calculation: 5% of $10,000 = $500 (base) + 1% of $10,000 × 4 months = $400 (monthly) = $900 total.
| Months Late | Penalty Calculation | Total Penalty Rate |
| 1 | 5% + (1 × 1%) | 6% of unpaid tax |
| 3 | 5% + (3 × 1%) | 8% of unpaid tax |
| 6 | 5% + (6 × 1%) | 11% of unpaid tax |
| 12 or more | 5% + (12 × 1%) | 17% of unpaid tax (maximum) |
When the penalty is higher (CRA “demand to file” + repeat late filing)
The late-filing penalty increases to 10% of the unpaid tax plus 2% per complete month (maximum 20 months) when CRA issued a demand to file under subsection 150(2) of the Income Tax Act and a failure-to-file penalty was assessed in any of the 3 preceding tax years. (Penalties for failing to file a T2 return)
Both conditions must be present: (1) CRA issued a formal demand to file under ITA subsection 150(2), and (2) the corporation was charged a failure-to-file penalty for any of the 3 previous tax years. (Income Tax Act, Subsection 150(2)) The 20-month maximum means the penalty can reach 50% of the unpaid tax.
A corporation with $10,000 in unpaid tax filing 4 complete months late under demand-to-file conditions faces a penalty of $1,800 (10% base = $1,000 + 2% × 4 months = $800), double the standard penalty.
Filing deadline vs payment deadline (why businesses get surprised)
The T2 filing deadline is 6 months after the tax year-end, while the payment deadline (balance-due day) is 2 months after the tax year-end for most corporations. (Corporation income tax filing and payment due dates)
Filing deadline (T2)
Corporations must file the T2 Corporation Income Tax Return within 6 months after the end of every tax year. (T2 return filing requirements) Returns are considered filed on time when the deadline falls on a Saturday, Sunday, or public holiday, and the return is received on the next business day. The T2 return covers federal and most provincial/territorial income tax. Quebec and Alberta require separate provincial corporate tax returns.
Payment deadline (balance-due day)
The balance-due day is 2 months after the tax year-end for most corporations, or 3 months for Canadian-controlled private corporations (CCPCs) that claimed the small business deduction and meet taxable income and capital requirements. (Payment dates) Corporations required to pay corporate tax instalments and balance-due day amounts must track both obligations separately. Interest begins accruing from the day after the balance-due day.
| Deadline Type | Timing | Consequence if missed |
| Balance-due day | 2 months after tax year-end (3 for eligible CCPCs) | Interest begins accruing |
| Filing deadline | 6 months after tax year-end | Late-filing penalty applies if unpaid tax exists |
Why you should file even if you can’t pay
Filing the T2 return on time stops the late-filing penalty from accruing, even when the corporation cannot pay the full balance on the balance-due day. Interest will still accrue on unpaid balances, but interest rates are significantly lower than penalty rates. Filing on time also preserves the corporation’s ability to claim a refund; CRA requires corporations to file within 3 years after the tax year-end to receive a refund. (Refund of overpayment)
Interest and other costs that can stack on top of the late-filing penalty
CRA charges compound daily interest on unpaid balances at prescribed rates, separate from and in addition to any late-filing penalty. (Interest on amounts owing)
CRA compounds interest daily at prescribed interest rates that are determined every three months. (Prescribed interest rates) Interest begins accumulating from the day after the balance-due day and continues until the corporation pays the amount in full. Interest can accumulate for 4 months before the filing deadline even arrives. Corporations that file late face both the late-filing penalty and arrears interest that has been compounding since the earlier balance-due day.
Corporations required to pay tax by instalments may face instalment interest charges, and an instalment penalty applies when instalment interest exceeds $1,000. (Instalment interest and penalty charges for corporations) Corporations with tax payable of $3,000 or more in the current year and either of the 2 preceding years must pay instalments.
Special penalty cases
CRA applies different penalty structures for non-resident corporations, large corporations with taxable capital exceeding $10 million, and corporations that fail to file electronically when required. (Penalties for failing to file a T2 return)
Non-resident corporations (special failure-to-file minimum)
Non-resident corporations face a minimum penalty equal to the greater of $100 or $25 for each day the return is overdue, to a maximum of 100 days, when this amount exceeds the standard late-filing penalty. The daily penalty reaches $2,500 at 100 days. Non-resident corporations with low or zero unpaid tax may face a higher penalty under the daily calculation than under the standard percentage-based formula.
Large corporations (additional monthly penalty)
Large corporations with combined taxable capital employed in Canada (including associated corporations) exceeding $10 million incur an additional penalty for each complete month the T2 return is late, to a maximum of 40 months. (Large corporations) The additional penalty is calculated as: (1) 0.0005% of the taxable capital employed in Canada, and (2) 0.25% of the tax payable under Part VI of the Income Tax Act. This penalty is assessed in addition to the standard or enhanced late-filing penalty.
Mandatory e-filing and the $1,000 non-compliance penalty
Corporations are required to file T2 returns electronically for tax years that start after 2023, and failure to comply when required carries a $1,000 penalty. (Mandatory electronic filing for T2 returns) Exceptions include corporations in their first tax year, exempt corporations, registered charities, and corporations filing their final return. The 2025 corporate tax filing deadlines reflect these new mandatory e-filing requirements.
| Penalty Type | Base Rate | Monthly Rate | Max Months | Key Conditions |
| Standard late-filing | 5% of unpaid tax | 1% per month | 12 | Return filed late with unpaid tax |
| Enhanced (repeat) | 10% of unpaid tax | 2% per month | 20 | CRA demand + prior penalty in the last 3 years |
| Non-resident minimum | Greater of $100 or $25/day | Daily rate | 100 days | When the daily penalty exceeds the standard |
| Large corporation | 0.0005% capital + 0.25% Part VI | Per month | 40 | Taxable capital > $10 million |
| E-filing | $1,000 flat | N/A | N/A | Tax years starting after 2023 |
Practical next steps if you’re late (minimize damage)
Corporations that have missed the T2 filing deadline should file the return immediately to stop further monthly penalties, arrange payment if needed, and explore taxpayer relief options if penalties or interest have already been assessed.
File now (even if incomplete) + correct later if needed
Filing the T2 return immediately stops additional monthly late-filing penalties from accruing. CRA allows corporations to file an initial return and submit an amended return later if corrections are needed. The filing date that matters for penalty calculation is when the original return was filed.
Set up a payment arrangement if you can’t pay in full
CRA allows corporations to request payment arrangements when the full balance cannot be paid immediately. (Make a payment arrangement) Interest continues to accrue during the payment arrangement period, but setting up an arrangement can prevent CRA collection actions.
Can CRA cancel or waive penalties/interest?
CRA may cancel or waive penalties and interest in cases of extraordinary circumstances, financial hardship, errors or processing delays by CRA, or situations beyond the corporation’s control. (Cancel or waive penalties or interest) Examples include natural disasters, serious illness, death in the family, and CRA processing delays. Corporations can request CRA relief to cancel or waive penalties and interest by submitting Form RC4288. Relief requests are generally limited to tax years ending within 10 calendar years before the request.
If you disagree with the assessed penalty/interest
Corporations have 90 days from the date on the notice of assessment or notice of reassessment to file a formal objection disputing the assessed penalty, interest, or tax amounts. (Dispute a tax assessment) The objection should clearly state the facts and reasons for disagreement and include all relevant supporting documentation.
FAQs
Does CRA charge a penalty if I file a T2 late but owe no tax?
The late-filing penalty is calculated as 5% of the unpaid tax plus 1% per complete month.
What happens if I pay corporate tax late but file on time?
Filing the T2 return on time avoids the late-filing penalty, but CRA charges arrears interest on unpaid balances from the day after the balance-due day until the amount is paid in full. Interest rates are lower than penalty percentages.
Conclusion
Filing the T2 Corporation Income Tax Return within 6 months after the tax year-end avoids CRA’s late-filing penalty and prevents a penalty history that could trigger enhanced penalties on future returns. Corporations that have missed the deadline should file immediately to stop monthly penalties from accumulating, explore payment arrangements if needed, and consider requesting taxpayer relief if extraordinary circumstances prevented timely compliance.
