Unfiled corporate returns: how to catch up
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Each year is its own return with its own penalty, and the books for each year have to exist before the return can.
What the rule is
A corporation files its T2 return no later than six months after the end of its tax year. A corporation that has missed several years has several late returns, and each one carries its own penalty, based on the tax still unpaid that was due on its filing deadline.
What each late return costs
- Late-filing penalty: 5% of the unpaid tax that was due on the filing deadline, plus 1% of it for each complete month the return is late, up to 12 months.
- Repeat penalty: 10% plus 2% a month, up to 20 months, when the CRA issued a formal demand to file and assessed a late-filing penalty (the CRA calls it a failure-to-file penalty) in any of the three previous tax years.
- Refunds: a return has to be filed no later than three years after the end of the tax year for a refund to be paid.
The refund limit matters for an old year in which the corporation overpaid, for example by paying instalments. Filing after the three years ends the refund and does not end the obligation to file.
The order to work in
- List every year-end since the corporation started, and mark which years have a filed return.
- Check the books for each unfiled year. Returns are built from finished books, so a year with no reconciled books starts with bookkeeping.
- Prepare and file the returns for the unfiled years.
- Pay what is owing, and ask the CRA about a payment arrangement if you cannot pay in full.
Before the CRA contacts you
The Voluntary Disclosures Program can reduce penalties and part of the interest on returns filed late, and the relief is highest when the application comes before the CRA contacts you. The program has its own guide, and the rules there are the CRA’s, not ours.
Do I owe a penalty for every year I missed?
Each late return carries its own penalty, calculated on the tax unpaid for that year. A year with no tax owing does not carry the late-filing penalty.
When is a T2 return due?
No later than six months after the end of the corporation’s tax year.
Can I still claim a refund for an old year?
Only if the return is filed no later than three years after the end of that tax year.
Where do I start when the books are behind?
With the books. We look at how far back it goes and quote the catch-up as one number before we start.
The Voluntary Disclosures Program →
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