Behind on Your Tax Returns? How to Catch Up and Limit the Damage

If you owe tax and file late, the CRA charges a late-filing penalty of 5% of the balance owing plus 1% for each full month the return is late, up to 12 months. If you were already charged a late-filing penalty in any of the three previous years and the CRA demanded a return, the penalty doubles to 10% plus 2% per month, up to 20 months. Interest compounds daily on unpaid tax and penalties.

If you do not file, the CRA may issue a formal demand under section 150 or a requirement under section 231.2. Failing to comply can result in additional penalties and prosecution under section 238, which can lead to fines and a court order to file. The CRA can also issue an arbitrary assessment under subsection 152(7), estimating your income, often generously, and begin collecting that amount.

Not filing also affects benefits and credits. Even people with little or no income need to file to receive the GST/HST credit, the Canada Child Benefit, the Ontario Trillium Benefit, Old Age Security supplements and other income-tested benefits. Many people who are behind are actually owed refunds or benefits, but refunds are generally only available for returns filed within a limited period, and benefit entitlements can be lost.

Unfiled returns also prevent you from qualifying for mortgages, completing immigration applications and obtaining clearance certificates, and can leave executors personally liable if a person dies with returns outstanding.

If the returns involve unreported income, catching up through the CRA's Voluntary Disclosures Program can provide penalty relief and partial interest relief and, for the matters disclosed, protection from prosecution. Under the revised program in effect since October 1, 2025, applications made before the CRA contacts you about the issue are eligible for 100% penalty relief and 75% interest relief for the years covered. Once the CRA has sent a demand to file, relief is reduced, so timing is critical.

Not every case needs the VDP. If you simply filed late and your income was fully reported by third parties, filing the returns, possibly with a taxpayer relief request, may be the better path. We advise on the right approach before anything is sent to the CRA.

We work with your accountant to gather records, reconstruct missing information from CRA records and bank statements, and prepare returns in the right order. Where amounts are owing, we plan for payment arrangements and penalty relief at the same time, so that filing does not immediately trigger collection problems you cannot handle.

Corporations and self-employed individuals often fall behind on several types of filings at once: corporate income tax returns, GST/HST returns and payroll remittances. Each has its own penalties, and unremitted GST/HST and payroll deductions can lead to personal assessments against directors. A catch-up plan should address all of them together, so that resolving one problem does not trigger another.