Late-filing penalty (corporation)

A buyer meets this penalty on finding that the target filed its T2 or other returns late. The Act applies the penalty to the person who failed to file; where that person is the target corporation, ask how a purchase would deal with it. See how to check for CRA debts before buying.

How section 162 works

Under subsection 162(1), the penalty is the total of an amount based on the person’s tax payable for the year that was unpaid when the return was required to be filed, and an amount that grows for each complete month from the due date to the filing date, up to a cap. Subsection 162(2) applies a higher calculation where a demand for the return was sent and a penalty was payable for any of the 3 preceding taxation years. Subsection 162(2.1) sets a different calculation for a non-resident corporation. The CRA’s page on avoiding penalties gives the current rates.

What to check

• Whether each T2 was filed on time and, if not, whether a notice of assessment shows a penalty
• Whether the CRA ever sent a demand to file
• Whether any penalty or interest is still owing
• How the purchase agreement treats penalties for years before closing