A demand to file is not the same as a reminder notice, and treating it like one is expensive. It changes your penalty rate, opens the door to prosecution for the failure itself, and usually precedes CRA assessing you on its own numbers.
What the letter actually is
CRA sends reminders when a return is late. A demand to file is a formal request under the Income Tax Act requiring the return by a stated date. It arrives by mail and appears in your CRA business account. It names the specific tax years and the date the returns are due.
Three things it changes
- Your penalty rate can double. The repeat-failure penalty under s.162(2) — 10% plus 2% per month to a maximum of 50% — applies only when a demand was issued and a late-filing penalty was also charged in any of the three previous tax years. Otherwise you stay at the 17% ceiling.
- Ignoring it is an offence in itself. Failing to comply with a demand is an offence separate from the tax owing, carrying fines and, in principle, imprisonment. Prosecutions are uncommon and usually follow a demand that was ignored, so once the letter arrives the risk is real.
- Voluntary disclosure relief shrinks. Since October 1, 2025, a Voluntary Disclosures Program application made after a letter that sets a filing deadline counts as prompted. It can still qualify as long as no audit or investigation has started, but interest relief drops from 75% to 25%. Penalty relief can still be up to 100%.
What comes next if you do nothing
CRA assesses the year itself under subsection 152(7) — a notional or arbitrary assessment. It estimates income from whatever it can see: T4A and T5018 slips, GST/HST returns, prior-year figures, industry data. Because it cannot see your expenses, the number is usually far above what you actually owe. You then receive a notice of assessment for that amount, and collections proceeds against it as real debt: garnishments, requirements to pay served on your bank, liens.
A notional assessment can usually be replaced by filing the real return, but not indefinitely: the objection deadline is 90 days from the notice, and CRA’s normal reassessment period (three years for a CCPC) runs from the same date.
The order to work in
- Read which years are named. A demand often covers only some of your outstanding years. Years the letter doesn’t mention may be treated differently under the Voluntary Disclosures Program, so get advice before sending CRA anything.
- Get authorized representation on the account. An accountant with representative access can see every open period and every assessment already raised, which is usually more than the letter tells you.
- Contact CRA before the deadline, not after. An extension is often available where there is a credible plan and a date attached to it. Silence is what escalates files.
- File oldest year first. Closing balances carry forward, and so do losses.
- Deal with the balance separately. Filing and paying are different problems. Payment arrangements exist, and CRA is markedly more flexible with a taxpayer who has filed.
The worst possible response is to file nothing because you cannot pay. The late-filing penalty is charged on the unpaid tax and grows each month the return stays unfiled, up to its cap, whether or not you can pay. Filing stops it growing, and you can then ask CRA for a payment arrangement on the balance.
Sources: CRA, Information Circular IC00-1R7, Voluntary Disclosures Program; Understanding interest. General information, not advice for your specific situation.
