Almost no small business in Canada misses an obligation on purpose. What happens is more ordinary: the owner travels and a payroll remittance slips a week, the annual return gets pushed to later, purchase receipts end up lost in a box. Each slip looks small, and that is exactly where it gets expensive.
These are the four problems that show up most often when compliance falls behind, with what Canadian law provides for each.
- Penalties grow over time: on a corporate return, 5% plus 1% for every month late.
- Directors can pay out of pocket for payroll withholdings and GST/HST the business did not remit.
- A federal corporation that stops filing annual returns can be dissolved, and a missing ISC register can bring fines of up to CAD 100,000.
1. Penalties that grow every month
Most CRA penalties are not a flat amount. They start as a percentage and keep growing until the situation is fixed:
Late item | Penalty |
Corporate return (T2) | 5% of unpaid tax, plus 1% per full month, up to 12 months. For repeat failures, 10% plus 2% per month, up to 20 months |
GST/HST return | 1% of the amount owing, plus 0.25% per full month, up to 12 months. Filing on paper when online filing is required costs CAD 100 the first time and CAD 250 after that |
Payroll remittance | 3% to 10%, depending on how many days late |
T4 slips | A flat CAD 100 for up to 5 slips. From 6 to 10, CAD 5 a day up to CAD 500, and the scale rises with the number of employees |
On top of penalties, interest runs on the balance owing. A T2 filed a year late can cost 17% of the tax, before interest.
2. Directors pay with their own assets
A corporation protects its owners’ personal assets, with one important exception. The tax withheld from employees’ pay and the GST/HST collected from customers do not belong to the business: it holds them for the government. If they are not remitted, directors are personally liable for them, along with penalties and interest.
The CRA must first try to collect from the company, and has up to 2 years after someone stops being a director to pursue them. A director’s defence is showing they took reasonable care to prevent the failure before it happened, not after. That is why using payroll withholdings to pay a supplier in a tight month is the most expensive mistake an owner can make.
3. The business can cease to exist
A federal corporation that stops filing its annual return with Corporations Canada can be dissolved. In practice, the agency acts after two years without a filing and sends a final notice with another 120 days to comply. A dissolved corporation cannot sign contracts or hold accounts in its name until it is revived.
The register of individuals with significant control (ISC), required since 2024, is filed with the same annual return. Failing to file can mean being refused a certificate of compliance, which banks and contracts often ask for, and fines of up to CAD 100,000 for the corporation.
4. Money left on the table
Not every cost of disorganization comes as a penalty. GST/HST paid on business purchases comes back as a credit, but only with the invoice and within a window of about 4 years. Without the documents, the credit is denied in a review. The same goes for deductible expenses: the CRA can ask for records going back six years, and an expense without a receipt becomes tax owing.
Add the owner’s time spent fixing loose ends, the fees to catch up on missed years, and the difficulty of getting credit with disorganized books. That is the cost no table shows.
How to avoid all four
The fix is not a big program: it is a calendar with an owner and records organized from the first month. The steps are in our guide on how to set up a compliance program, and every deadline is in what compliance means in practice. If the business already has gaps, the CRA’s Voluntary Disclosures Program waives penalties for those who come forward before the CRA contacts them.
Frequently Asked Questions (FAQ)
5% of unpaid tax plus 1% per full month late, up to 12 months. For repeat failures, 10% plus 2% per month, up to 20 months.
Yes, for unremitted payroll withholdings and GST/HST, including penalties and interest. The CRA must try to collect from the company first, and a director can defend themselves by showing they took reasonable care before the failure.
Yes. A federal corporation that stops filing can be dissolved. In practice, Corporations Canada acts after two years and gives another 120 days to comply.
A federal corporation can be fined up to CAD 100,000 and be refused a certificate of compliance.
Fix them as soon as possible. The CRA’s Voluntary Disclosures Program waives penalties for those who come forward before the CRA contacts them.
