Introduction

The T2 corporate income tax return is due six months after the corporation's fiscal year end. For a December 31 year end, the filing deadline is June 30. For a March 31 year end, it is September 30. Many incorporated business owners confuse the filing deadline with the payment deadline — or simply miss the deadline because the year-end was unusually busy.

This article explains precisely what happens when a T2 is filed late, how the penalty is calculated, and what the most efficient path to resolution looks like.

The Late-Filing Penalty

The CRA assesses a late-filing penalty under subsection 162(1) of the Income Tax Act. The penalty is 5% of the balance of tax unpaid at the filing due date, plus 1% per complete month the return is late (to a maximum of 12 months) — a total maximum first-time penalty of 17% of the unpaid balance.

Important distinction: The penalty is on the unpaid balance, not the total tax owing. A corporation that paid all of its instalments accurately throughout the year, such that the balance due at filing is zero, faces no monetary penalty for a late T2 — only the late filing itself.

A corporation that failed to pay instalments and has a large balance owing at the filing deadline faces a penalty of 5% of that balance immediately, plus 1% per month thereafter.

The Repeat Late-Filing Penalty

If the CRA has formally demanded a return from the corporation (issued a Request to File) in a prior three-year period, and the corporation files late again, the penalty doubles: 10% of the unpaid balance plus 2% per month to a maximum of 20 months — a total possible penalty of 50%.

This escalation is significant for corporations that have a pattern of late filing. A corporation that files three or four years late, each time after a CRA request, faces the enhanced penalty rate on each late return.

Interest on Unpaid Balances

In addition to the late-filing penalty, the CRA charges interest on unpaid tax balances at the prescribed interest rate (currently 9% annually in 2026, compounded daily). Interest begins from the day after the payment due date — which, for most corporations, is two months after fiscal year end (not six months when the T2 is due).

A corporation with a December 31 year end that pays nothing and files nothing until the following March has accrued nine months of interest on its unpaid balance before the T2 is even filed.

What Happens After the Deadline Passes

The CRA's enforcement process for missing T2 filings:

Step 1 — Automated reminder: The CRA's systems flag the corporation as having a missing return after the deadline passes. An automated notice may be generated.

Step 2 — Formal Demand to File (Section 150(2) notice): After a period of non-filing, the CRA issues a formal Demand to File. Failure to file after receiving a demand can result in prosecution for failure to file — a criminal offence.

Step 3 — Notional assessment: The CRA may issue a notional assessment — an estimate of the tax owing based on available information (prior year returns, third-party information). The taxpayer must then file the actual return to replace the notional assessment.

Step 4 — Director liability: Directors of a corporation that repeatedly fails to file face potential personal liability for the corporation's tax obligations, including penalties and interest, where the corporation's assets are insufficient.

The Resolution Path

The most straightforward path to resolution is simply filing the late T2 — correctly prepared, with all supporting documentation. A CPA who is engaged for this purpose can prepare the late return quickly, calculate the penalty and interest, and file with a cover letter requesting penalty relief under the taxpayer relief provisions if appropriate circumstances exist.

The CRA's taxpayer relief program (subsection 220(3.1)) allows the CRA to waive or cancel penalties and interest where there are extraordinary circumstances — serious illness, natural disaster, or CRA error — that prevented timely filing. A straightforward missed deadline without extraordinary circumstances is unlikely to qualify, but a pattern of health challenges or other demonstrable disruption may support a partial waiver.

When to Speak With a CPA

If a T2 is overdue, the right move is to engage a CPA immediately and file as quickly as possible. Every additional month of delay increases the late-filing penalty and the interest on any unpaid balance. Early engagement produces the best possible outcome.

Rotaru CPA helps corporations with missed or late T2 filings — from preparation through CRA resolution. Book a consultation if your corporation has outstanding returns.