What happens if I don’t file taxes for 3 years in Canada?
What happens if I don’t file taxes for 3 years in Canada?
By Bader A. Chowdry, CPA, CA, LPA | Insight Accounting CPA
Failing to file your taxes for three consecutive years in Canada triggers serious consequences that escalate over time. The Canada Revenue Agency (CRA) has extensive enforcement powers, and delaying your tax obligations only compounds the financial and legal penalties you’ll face.
Immediate Financial Penalties
The CRA imposes a late-filing penalty of 5% of your balance owing, plus 1% for each additional month your return is late, up to a maximum of 12 months. If you’ve been charged a late-filing penalty in any of the three previous tax years, this penalty doubles to 10% plus 2% per month, making a three-year delay extraordinarily expensive.
For someone owing $15,000 in taxes over three years, penalties alone could exceed $5,000—and that’s before considering compound daily interest charged on both the unpaid tax and penalties.
Escalating CRA Enforcement Actions
After three years of non-filing, the CRA typically moves from letters and phone calls to more aggressive collection methods. They have the legal authority to:
- Garnish your wages by requiring your employer to send a portion of each paycheque directly to the CRA
- Seize your bank account through a Requirement to Pay notice sent to your financial institution
- File liens against your property, making it impossible to sell or refinance without settling your tax debt
- Withhold GST/HST credits and income tax refunds from future years indefinitely
The CRA doesn’t need to take you to court to execute these actions—their collection authority is built into the Income Tax Act.
Loss of Benefits and Credits
Many Canadians don’t realize that failing to file taxes means losing access to valuable federal and provincial benefits, including:
- Canada Child Benefit (CCB)
- GST/HST credit
- Ontario Trillium Benefit
- Canada Workers Benefit
Even if you had no tax owing, not filing means forfeiting thousands of dollars in benefits each year. Our bookkeeping services in Mississauga help clients catch up on unfiled returns and recover lost benefits.
CRA Arbitrary Assessments
When you don’t file, the CRA has the authority to issue an arbitrary assessment based on their own estimates of your income. These assessments are almost always higher than what you actually owe, and the burden of proof falls on you to demonstrate otherwise.
To dispute an arbitrary assessment, you must file the outstanding returns—but by then, interest has been accumulating on an inflated amount for years.
Criminal Prosecution Risk
While rare, persistent non-filing can result in criminal charges under Section 238 of the Income Tax Act. Tax evasion convictions carry fines from 50% to 200% of the taxes evaded, plus potential jail time of up to five years. The CRA typically reserves prosecution for cases involving significant amounts or deliberate concealment, but three years of non-compliance can trigger a CRA audit that uncovers these issues.
How to Get Back on Track
If you’re three years behind, the best approach is:
Our team at Insight Accounting CPA in the Greater Toronto Area specializes in resolving complex tax situations for Ontario businesses and individuals. We’ve helped hundreds of clients navigate CRA debt negotiations and catch up on unfiled returns while minimizing penalties.
Need help? Call us at (905) 270-1873 or start the conversation here.
Frequently Asked Questions
Can the CRA put me in jail for not filing taxes for 3 years?
While imprisonment is rare and typically reserved for tax evasion cases involving fraud, the CRA can pursue criminal charges for persistent non-filing. Most cases are resolved through civil penalties and collection actions, but criminal prosecution becomes more likely if there’s evidence of intentional avoidance or unreported income.
Will filing my old tax returns stop CRA collection actions?
Filing your returns is the critical first step, but it doesn’t automatically stop collection activity. You’ll still owe the taxes, penalties, and interest. However, filing demonstrates compliance and makes you eligible for payment arrangements or taxpayer relief. Our corporate tax planning services can help you develop a strategy to resolve outstanding obligations.
Can I negotiate to reduce penalties and interest on 3 years of unfiled taxes?
Yes, through the CRA’s Taxpayer Relief provisions, you may be able to request penalty and interest relief if you can demonstrate circumstances beyond your control (serious illness, natural disaster, financial hardship). The CRA evaluates each case individually, and having professional representation significantly improves your chances of approval.
Insight Accounting CPA serves Mississauga, Toronto, and the GTA with expert tax resolution, AI-powered advisory services, and comprehensive bookkeeping. Our patent-pending AI governance framework ensures your financial data is handled with the highest level of security and accuracy.
Ready to resolve your tax situation? Call (905) 270-1873 or get started here.
