Key points
- Late filing with tax owing: 5% plus 1% a month, up to 12 months.
- Repeat late filing after a demand to file: 10% plus 2% a month, up to 20 months.
- Interest is compounded daily at the prescribed rate: 7% from October to December 2026.
- Missed or short instalments carry interest, and a penalty once that interest passes $1,000.
- Relief can be requested on Form RC4288 or online, within a 10-year limit.
The late-filing penalty
The Canada Revenue Agency (CRA) charges a late-filing penalty only when you file after the due date and owe tax. For 2026 returns, filed in 2027, most people must file by 30 April 2027, and everyone's balance is due by 30 April 2027. Self-employed people and their spouses or partners have until 15 June 2027 to file, but any balance is still due on 30 April.
| Situation | Penalty |
|---|---|
| First late return | 5% of the balance owing, plus 1% of it for each full month late, up to 12 months |
| Late again after a penalty in one of the three previous years, and a demand to file | 10% of the balance owing, plus 2% of it for each full month late, up to 20 months |
The CRA's own advice is to file by the due date even if you can't pay: the penalty is avoided, and only interest runs on what you owe.
Round numbers. A Surrey employee (not self-employed, so their filing deadline is 30 April 2027) owes $10,000 on their 2026 return and files at the end of July 2027, three full months late. The penalty is 5% ($500) plus 3 × 1% ($300), so $800. Interest also runs on the unpaid $10,000 from 1 May 2027: 92 days to 31 July at 7% compounded daily is about $178, roughly $180, if the rate stayed at 7%, and it keeps growing until the balance is paid. A self-employed contractor filing on the same day would count from 15 June instead: one full month late, so 6%, or $600, but interest on the unpaid tax would still run from 1 May.
Interest at the prescribed rate
Interest starts the day after the due date on any unpaid amount, including amounts from reassessments, and is compounded daily. The rate is set every three months, based on the prescribed rates.
- For July to September and October to December 2026, the rate on overdue taxes, CPP contributions and EI premiums is 7%. The same 7% applies to overdue GST/HST.
- Interest also builds on unpaid penalties.
- In most cases interest still applies while an amount is in dispute.
Instalment interest and penalty
If not enough tax is withheld from your income, for example because you are self-employed or have rental income, you may have to pay instalments. For 2026 that applies if your net tax owing is more than $3,000 in 2026 and was also more than $3,000 in 2025 or 2024. Instalments are due on 15 March, 15 June, 15 September and 15 December.
- Instalment interest is charged on late or short payments, compounded daily at the prescribed rate, if it comes to more than $25.
- The instalment penalty applies only when that interest is over $1,000. The CRA takes the higher of $1,000 and 25% of the interest you'd have owed with no instalments at all, subtracts it from your actual instalment interest, and halves the result.
- Paying your next instalment early, or paying more, can reduce or cancel the interest.
Failing to report income
- Repeated failure to report. If you leave out $500 or more on your return and also did in one of the three previous years, the penalty is the lesser of 10% of the amount left out, or 50% of the tax it understated minus any tax withheld on it.
- False statements or omissions. If done knowingly or through gross negligence, the penalty is the greater of $100 or 50% of the tax understated or credits overstated.
- The CRA may give relief if you correct things voluntarily, before it contacts you, through the Voluntary Disclosures Program.
Payroll and GST/HST penalties
Businesses also see two other penalties. Late payroll remittances can cost 3% to 10%, or 20% for a repeat in the same year (see our payroll guide). A late GST/HST return with a balance owing costs 1% of the amount owing plus 0.25% of it for each full month late, up to 12 months (see GST/HST registration).
Asking for relief: Form RC4288
Under the taxpayer relief provisions, the CRA can cancel or waive penalties and interest when circumstances beyond your control stopped you from meeting your obligations. Common situations:
- Extraordinary circumstances, such as a flood or fire, a serious illness or accident, or a death in the immediate family.
- Financial hardship, where paying the interest would leave you unable to pay for basics or keep a business going.
- CRA actions, such as processing errors, wrong information from the CRA, or undue delays.
Apply online in My Account or My Business Account ("Request relief of penalties and interest"), or by mail on Form RC4288. Explain what happened, how it stopped you from filing or paying, and include documents such as a doctor's letter or insurance report. Meeting the criteria doesn't mean relief will be granted; the CRA decides each request.
There's a 10-year limit: a penalty must relate to a tax year ending in the 10 calendar years before the year you ask, and only interest from those 10 years is considered. Some penalties, such as the GST/HST gross negligence penalty, can't be relieved this way.
How Finvo helps
We look at your CRA notices with you, work out what each penalty and interest charge is for, and catch up any late returns. If a relief request fits your circumstances, we prepare it with the documents for your approval; the CRA decides. To help keep penalties from coming back, we keep your books monthly so GST, payroll and tax amounts are known before they're due, on the agreed schedule once your records are in. Clients near our Surrey office can meet in person.
This guide is general information for people and businesses in Surrey, the rest of BC and Alberta, checked against the CRA's pages on 28 Oct 2026. Rules have exceptions and can change; it isn't tax advice for your situation.