What is Taxpayer Relief?
Taxpayers aren’t perfect, and quite frequently circumstances beyond their control prevent them from meeting their tax obligations. While the Canada Revenue Agency (“CRA”) won’t come to arrest you (in most circumstances), they can penalize taxpayers through the use of penalty and interest provisions.
For instance, the CRA can impose penalties for:
- Late filing;
- Failure to file;
- Repeated failures to file; and
- False statements or omissions.
The CRA charges daily compound interest on any unpaid amounts owing (including penalties!) causing tax liabilities to rapidly increase.
What is Taxpayer Relief?
Taxpayer relief is a fairness provision that gives taxpayers the opportunity to have penalties and interest waived or cancelled. Under this provision, taxpayers can explain the situation(s) that made them unable to meet their tax obligations in the hopes that the CRA will forgive their past mistakes.
Note that taxpayer relief applies to only penalties and interest, not to the principal tax liability. To dispute the principal tax liability arising out of a Notice of Assessment or Reassessment, taxpayers must file a Notice of Objection.
Circumstances that Warrant Penalty and Interest Relief
The CRA may agree to waive or cancel penalties and interest if the taxpayer can demonstrate that their inability to meet tax obligations was caused by one or more of the following reasons:
- Extraordinary circumstances;
- Natural or man made disasters (fires, floods, etc.);
- Serious illness;
- Accident; and
- Fraud or theft.
- Actions of the CRA;
- Inability to pay or financial hardship; or
- Where payment of the debt would result in an inability to pay for basic necessities such as food and shelter;
- Where there is no ability to pay the CRA; and
- If the taxpayer is on social assistance.
- Other circumstances.
- If a situation does not fall under the above categories, the CRA may grant relief depending on the circumstances. Each situation is examined independently based not the facts provided.
The CRA will require that you provide supporting documentation along with your taxpayer relief application. Relevant documentation will vary depending on the reasons asserted in your application. For instance, if you failed to meet your tax obligations due to a flood, you should include documents such as insurance statements, photographs, and police reports.
In cases involving financial hardship, the taxpayer should provide full financial disclosure including a statement of income and expenses, a statement of assets and liabilities, recent banks statements, and recent credit card statements. If applicable, the taxpayer should also show proof of meaningful payment arrangement with the CRA which covers at least the tax and the penalty part.
There is a 10-year limitation period on taxpayer relief provisions. That is, the CRA may grant relief for any tax year that ended within 10 years before the calendar year in which the taxpayer’s request or income tax return is filed.
Note, however, that taxpayer relief can apply to reduce interest that has accumulated in the 10 taxation years preceding the relief request even if the tax debt causing the interest arose prior to that period. For example, if a tax debt arose from the 2006 tax year, interest that has accumulated from 2007 to 2017 could still be waived or cancelled.
While each taxpayer has the right to request taxpayer relief, the CRA’s decision to grant the relief is discretionary. Therefore, it is especially important to make a strong argument and clearly state the reasons you should be granted taxpayer relief. If you require assistance with your taxpayer relief application, contact a tax lawyer at Rosen Kirshen Tax Law today!
This article provides information of a general nature only. It does not provide legal advice nor can it or should it be relied upon. All tax situations are specific to their facts and will differ from the situations in this article. If you have specific legal questions you should consult a lawyer.