How to apply for taxpayer relief of penalties and interest if you have trouble paying a debt owed to Canada Revenue Agency. Relief may be awarded under subsection 220(3.1) of the Income Tax Act.
What is the difference between a waiver and a cancellation?
- A waiver refers to penalties and interests otherwise payable by a taxpayer for which relief is granted by the CRA before these amounts are assessed or charged to the taxpayer.
- A cancellation refers to penalties and interest amounts that were assessed or charged to the taxpayer for which relief is granted by the CRA.
Is there a deadline to apply for taxpayer relief?
- The general limitation period for applying for taxpayer relief is 10 years. For interest relief, it works as follows:
A taxpayer has a tax debt for the 2006 tax year and makes a first request for interest relief in 2019. The minister may grant relief from the interest that accrued during the 10-year period from January 1, 2009, to December 31, 2019. The interest that accrued before January 1, 2009, is not eligible for relief.
- The minister has no authority to cancel interest that accrued during a calendar year that ended more than 10 years before the calendar year in which the request was made.
- Since the 10-year limitation period rolls forward every January 1. If you are debating between filing at the end of a particular year, or wait until the new year, it may be advantageous to file as soon as possible. This may allow the Minister to go back an extra year for taxpayer relief purposes.
What is my audit, objection or appeal are not resolved as the 10-year limit approaches?
- The taxpayer should send in a protective request for potential relief to make sure the request is made before the 10-year limit expires. Any details and supporting documentation needed to complete the request can be sent later, after the audit or formal dispute process is done.
How can I avoid further interest from being charged while the Minister considers my application for relief?
- The only way to avoid further interest charges is by paying the amount owing in full. If relief is later granted, the CRA will pay refund interest on the penalty and interest amounts previously paid and cancelled. Otherwise, the CRA continues to charge compound daily interest at the prescribed rate on any amount owing when a taxpayer makes a request for relief.
What guidelines does the Minister have to follow in cancelling or waiving penalties and interest?
- The minister may provide relief from interest amounts, and in some cases penalty amounts that are otherwise payable if he or she is satisfied that a taxpayer cannot pay or suffers from financial hardship related to a debt owed to CRA.
- Relief may be granted when the following types of situations exist and justify a taxpayer’s inability to satisfy a tax obligation or requirement:
- Extraordinary circumstances
- Actions of the CRA
- Inability to pay or financial hardship
- Other circumstances that do not fall within the situations stated above.
Extraordinary Circumstances
- Generally described as circumstances beyond a taxpayer’s control that may have prevented a taxpayer from making a payment when due, filing a return on time, or otherwise complying with an obligation. For example,
a) natural or human-made disasters, such as flood or fire
b) civil disturbances or disruptions in services, such as a postal strike
c) serious illness or accident
d) serious emotional or mental distress, such as death in the immediate family
- CRA news releases on extraordinary events that qualify for relief can be found here.
Actions of the CRA
- Generally described as circumstances that resulted mainly because of actions of the CRA, such as,
a) processing delays that result in the taxpayer not being informed, within a reasonable time, that an amount was owing
b) errors in material available to the public, which led taxpayers to file returns or make payments based on incorrect information
c) incorrect information provided to a taxpayer
d) errors in processing
e) delays in providing information, such as when a taxpayer could not make the appropriate installment or arrears payments because the necessary information was not available
f) undue delays in resolving an objection or an appeal, or in completing an audit
Inability to pay or financial hardship
- In circumstances where there is a confirmed inability to pay all amounts owing, to consider waiving or cancelling all or part of the interest, to enable taxpayers to pay their debt. For example,
a) when collection has been suspended due to an inability to pay and substantial interest applies to the outstanding amount
b) when a taxpayer’s demonstrated ability to pay requires an extended payment arrangement, consideration may be given to cancelling all or part of the interest for the period from when payments start until the amounts owing are paid, as long as the agreed payments are made on time and compliance with the act is maintained
c) when payment of the accumulated interest would cause a prolonged inability to provide basic necessities (financial hardship) such as food, medical care, transportation, or accommodation
d) when a taxpayer cannot make a reasonable payment arrangement because the interest charges would absorb a significant portion of the payments, cancelling all or part of the interest for the period from when payments start
until the amounts owing are paid may be considered, as long as the agreed payments are made on time and compliance with the act is maintained.
What factors are used to arrive at a decision for relief of penalties and interest?
- Whether the taxpayer has a history of compliance with tax obligations
- Whether the taxpayer has knowingly allowed a balance to exist on which arrears interest has accrued
- Whether the taxpayer has exercised a reasonable amount of care and has not been negligent or careless in conducting their affairs under the self-assessment system
- Whether the taxpayer has acted quickly to remedy any delay or omission
How to apply for relief of penalties and interest?
- Fill out form RC4288 - Request for Taxpayer Relief - Cancel or Waive Penalties and Interest
- Additionally, if you are making an application based on inability to pay or financial hardship, you will also need to submit form RC376 - Taxpayer Relief Request - Statement of Income and Expenses and Assets and Liabilities for Individuals. Documentation could include, but is not limited to, the following:
- Employment and/or other income statement or slips
- Mortgage statement
- Lease or rental agreement
- Property tax assessment and/or condo fees
- Loan statements
- Utility statements
- Bank statements (most recent three months)
- Investment statements
- Credit card statements
- Insurance (e.g. home, auto, life) statements.
- It is important to include all circumstances that you intend to rely on. Your submissions should provide the CRA with a complete and accurate description of your circumstances to explain why your situation merits relief.
How do I submit my documents?
- You can submit your documents electronically.
- You can also mail your documents to the designated office listed on page 4 of the forms.
How can Sisu Legal help with taxpayer relief of penalties and interest?
- If you would like full legal representation, contact us for a referral to specialized tax lawyers that can assist you.
- If you cannot afford full legal representation but would like assistance we offer limited scope representation. For example, we can review your application for tax payer relief and give you feedback and suggestions before you submit. Unless you prefer otherwise, our legal services are always flat fees.
For more details and direction, please see Information Circular 07-1R1 - Tax Payer Relief Provisions on the Canada Revenue Agency website.
Disclaimer - The information provided is intended to be legal information and is not a substitute for legal advice. Each circumstance is different and whenever possible, a legal professional should be consulted.