Lang Lang Ltd., a CCPC eligible for the small business deduction, has a March 31 year end. Due to the death of the owner/manager, the tax return for the year ended March 31, 2019 was not filed until May 12, 2021. The unpaid tax on March 31, 2019 was $15,500. Lang Lang Ltd. has never filed a return late before. What is the total late file penalty that the corporation is required to pay? (Do not include any interest payable.)
A)$775.
B)$2,635.
C)$1,860.
D)$3,720.

Question

Quizplus · Accepted Answer

The penalty for late filing of a corporate tax return is calculated as follows: 1% of the unpaid tax on the filing due date, plus an additional 1% for each complete month that the return is late, to a maximum of 12%. In this case, the unpaid tax on the filing due date (September 30, 2020) was $15,500, so the initial penalty is $155. Because the return was filed 19 months late, the additional penalty is 19% of the unpaid tax, or $2,945. The total late file penalty is therefore $155 + $2,945 = $2,635.