INTEREST, Interest and Late-Filing Penalty

This form has been designed to allow you to calculate interest on the balance unpaid, the late-filing penalty as well as the interest on the late-filing penalty for the following three returns: the Corporation Income Tax Return (T2), the Alberta Corporate Income Tax Return (AT1) and the Corporation Income Tax Return (CO-17).

Preparer Profiles

Options with respect to printing the paragraph relating to interest and late-filing penalty

If Form Interest and Late-Filing Penalty is applicable and the check box include the paragraph relating to interest and penalty is selected in sub-section 1 of the CLIENT LETTER tab in the selected preparer profile, the paragraph relating to interest and late-filing penalty will be included in the client letter for all your client files.

You are also able, for a given client file, not to include the paragraph relating to interest and penalty, by clearing the check box Include the paragraph relating to the interest and penalty in the Interest and late-filing penalty section of the Client Letter Worksheet (Jump Code: LW).

Display and print detailed calculations of the interest and late-filing penalty

If you want to display on screen and print detailed calculations of the interest on the balance unpaid, the late-filing penalty and the interest on late-filing penalty in the Federal, Alberta and Québec sections, select the following box:

Calculating the late-filing penalty in the Federal section

Under subsection 162(1) of the Income Tax Act (ITA), if a corporation late-files its tax return, it is liable to a penalty of 5% on the unpaid tax, plus 1% of this tax for each complete month that the return is late, up to a maximum of 12 months.

Note that the amount of balance unpaid used to calculate the late-filing penalty in the Federal section includes both the federal income tax and the provincial or territorial income tax amounts (with the exception of Québec and Alberta) and excludes the following because the refunds are deemed paid after the date the return is required to be filed:

the dividend refund (line 784 of the T2 return);
the federal capital gains refund (line 788 of the T2 return); and
the provincial or territorial capital gains refund (line 808 of the T2 return).

However, under subsection 162(2) of the ITA, if a corporation has not filed a return for a taxation year after having received a demand to file under ss. 150(2) and if prior to this failure, a penalty was payable for failure to file an income tax return for any of the three preceding taxation years, the corporation is liable to a penalty of 10% of tax payable plus 2% of this tax for each complete month that the return is late, up to a maximum of 20 months. The following question is used to adjust the late-filing penalty rates according to the corporation’s situation, if applicable.

Calculating the late-filing penalty in the Alberta section

Under subsection 37(1) of the Alberta Corporate Tax Act (ACTA), if a corporation late-files its income tax return, it is liable to a penalty of 5% on the unpaid tax (paragraph 37(1)(a)), plus 1% of this tax, for each complete month that the return is late, up to a maximum of 12 months (paragraph 37(1)(b)). However, the amount of unpaid tax is different for the purpose of the calculations under paragraph 37(1)(a) and paragraph 37(1)(b). For the purpose of the calculation under paragraph 37(1)(a), the unpaid tax corresponds to the amount on line 080 of the AT1 return minus the amounts in accordance to the following tax credits:

Alberta Scientific Research and Experimental Development (SR&ED) Tax Credit (line 081 of the AT1 return);
Instalments, other payments and ARTC instalments credited to income tax account for this taxation year (line 082 of the AT1 return);
Interactive Digital Media Tax Credit (line 085 of the AT1 return); and
Alberta Qualifying Trust (QET) Tax Credit and Film and Television Tax Credit (entered on line 087 of the AT1 return).

For the purpose of the calculation under paragraph 37(1)(b), the unpaid tax corresponds to the amount on line 080 of the AT1 return minus the amount on line Instalments, other payments and ARTC instalments credited to income tax account for this taxation year (line 082 of the AT1 return).

In addition, for both calculations, the Alberta Capital Gains Refund (line 086 of the AT1 return) should not be taken into account because the refund is deemed paid after the return’s filing deadline.

Filing deadline field

The Filing deadline field in the Federal, Alberta and Québec sections is used to determine the number of complete months that the return is late for purposes of calculating the late-filing penalty and is also used to determine the number of days that the return is late for purposes of calculating the interest on the late-filing penalty.

Expected filing date field

The Expected filing date field of the Federal, Alberta and Québec sections allows you to enter the date on which the return is filed. It is used to enable the calculations for the late-filing penalty, the interest on the late-filing penalty and the interest on the balance unpaid. When a date is entered in this field and the Date balance paid (if different from expected filing date above) field is not completed, the program considers that the total payment has been made, i.e., that the payment enclosed with the return takes into account the balance unpaid and the amounts of interest and penalty estimated in this form.

Date balance paid (if different from expected filing date above) field

When the corporation late filed its return and the total payment of its balance due has been made at a date other than the date entered in the field Expected filing date, the field Date balance paid (if different from expected filing date above) in the Dates subsection of the Federal, Alberta and Québec sections allows you to enter the date on which the balance due has been paid in full. When a date is entered in this field, the program calculates the interest on the balance due as of this date.

Total amount owed subsection

If the corporation paid part of its balance due on or before the balance-due day, you can enter the amount of the payment made in the field below in the Total amount owed subsection of the Federal, Alberta and Québec sections. The program will then calculate the interest on the balance due, the late-filing penalty and the interest on the late-filing penalty using the difference between the balance due and the payment made.

Balance-due day field

The field Balance-due day in the Federal, Alberta and Québec sections is used to determine the number of days that the balance due is late for purposes of calculating the interest on the balance unpaid.

Calculations in the Rates subsection in the Alberta and Québec sections

The prescribed interest rates are compounded quarterly. A calendar year has four quarters, which correspond to the following four periods: January 1 to March 31, April 1 to June 30, July 1 to September 30 and October 1 to December 31. The prescribed interest rates for each quarter will be displayed based on the expected filing date and the balance-due day in the Rates subsection of the Federal, Alberta and Québec sections.

Calculations in the Interest subsection in the Federal, Alberta and Québec sections

Interest on the balance unpaid is calculated per quarter. Therefore, in the Interest subsection of the Federal, Alberta and Québec sections, a calculation of the interest on the balance unpaid will be performed for each quarter in the Rates section. In addition, a calculation of the interest on the late-filing penalty will be performed for each quarter occurring between the expected filing deadline and the filing deadline.

Note that the amount of balance unpaid used to calculate interest on the balance unpaid in the Federal section includes both the federal income tax and the provincial or territorial income tax amounts (with the exception of Québec and Alberta) and excludes the following because the refunds are deemed paid after the balance-due day:

the dividend refund (line 784 of the T2 return);
the federal capital gains refund (line 788 of the T2 return); and
the provincial or territorial capital gains refund (line 808 of the T2 return).

In addition, the Alberta Capital Gains Refund (line 086 of the AT1 return) should not be taken into account in the Interest on the balance unpaid calculation in the Alberta section because the refund is deemed paid after the balance-due day.

Here is an example illustrating how to use the form:

The corporation has a balance due of $10,000 in its Corporation Income Tax Return (T2) and it has made a payment of $5,000 before the balance-due day. The filing deadline is June 30, 2020, the expected filing date is October 15, 2020, the date the balance is paid is October 31, 2020, and the balance-due day is March 31, 2020.

The late-filing penalty as well as the interest on this penalty is applicable starting July 1, 2020, until October 15, 2020.

As for the interest on the balance due, it is calculated for the period of March 1, 2020, to October 31, 2020.

Make online requests

You can request an interest review or a Statement of Interest using "Make online requests" service if you are an authorized representative or a business owner. To view a revised balance that includes interest calculated to a specific date, click Calculate Future Balance in "My Business Account" on the CRA Web site, and select the desired date. You can also choose this option from the left sidebar menu if the corporation has an amount owing in a filing period. For more information on this topic, consult the CRA Web page, Understanding interest.