Catch-up
CRA sent a demand to file a T2. How does the repeated-failure penalty work?
2026-10-14 · 6 min read · Tax Everyday, Vaughan
Read the letter for the words that demand a return by a date. A reminder is a warning. A demand is the trigger. The repeated-failure penalty on a corporate return applies only when both conditions are met: CRA has already charged a late-filing penalty in any of the three preceding taxation years, and CRA has issued a demand to file this return. The penalty is then 10% of the unpaid tax at the filing deadline, plus 2% of that unpaid tax for each full month the return is late after the demand, up to 20 months.
If you have never been penalized in the three prior years, a demand does not by itself invent the 10% rate. You are still late, and the ordinary 5% plus 1% a month penalty can apply to unpaid tax. The demand also means a person at CRA is now waiting. Arbitrary assessment is the usual next step if the return does not arrive.
What to do in the week the letter arrives
The date on the letter is the date that matters. Do not put the letter in the same pile as the bookkeeping you meant to do in the spring.
- Note the taxation year named. Demands are often for one year, while you are behind by four. Ask what else is open. Do not assume.
- Check the three prior years for an earlier late-filing penalty. The notice of assessment shows it.
- If the books for that year exist, file before you perfect the other years.
- If the books do not exist, get statements started immediately and tell the preparer about the deadline on day one.
- Paying a portion does not file the return. Both have to happen.
Bring the demand with the books
Tax Everyday treats a demand file as time-sensitive corporate work. If the year is ready, the corporate package is $2,000 plus HST. If the year has to be built from bank statements against a deadline, we quote it and we say whether the date is realistic. Drop the PDF of the letter first. The year and the deadline are on page one.
Short answers
We filed something years ago and never heard back. Does that count as a penalty?+
Only a penalty that was actually charged counts. Look at the notices. A return that was late but had no tax owing may not have carried the late-filing penalty. Do not guess your way into the 10% rate, and do not guess your way out of it.
Can we ask for more time?+
You can ask. Do not plan on it. A demand that is ignored is how the repeated-failure months accumulate and how arbitrary assessments get issued. Start the return the week the letter arrives.
Want this applied to your file?
These notes are general. A return is prepared only after we see your slips.