Taxpayer Relief From Penalties or Interest
The best way to not have to pay tax penalties or interest to the Canada Revenue Agency (CRA) is to file your income tax return on time and to pay your taxes when they are due. However, if exceptional circumstances beyond your control have made it extremely difficult or impossible for you to do that, you can submit a written request to the CRA asking that penalties or interest (not taxes) be cancelled or waived. Taxpayer relief provisions in Canadian income tax legislation make a provision for the Minister of National Revenue to grant full or partial relief from penalty or interest payments at his/her discretion, although it is by no means handed out easily.
Even if you can't pay your taxes in full, file your income tax return anyway. Before the CRA will even look at an application for relief from penalties or interest, all of your tax returns need to be filed.
Deadline for Requesting Taxpayer Penalty or Interest Relief
In order to be considered for relief, a request must be made within 10 years from the end of the calendar year in which the tax year or fiscal period at issue ended.
Reasons Tax Penalties or Interest May Be Cancelled or Waived
The CRA considers four different types of situation when considering relief from tax penalties or interest.
- Extraordinary Circumstances: These can include disasters, such as a flood or fire which destroyed your tax records; civil disturbances or disruption in services, such as a riot or postal strike; a serious accident or illness; or serious emotional or mental distress such as a death in the family. The circumstances of some divorces could fall in this category also.
- Actions by the CRA: This category is for delays that were caused primarily by the CRA. Examples are if a taxpayer was not informed within a reasonable time that an amount was owing; if a taxpayer was given incorrect information; and unreasonable and extended delays in the resolution of an objection or an appeal, or in the completion of an audit.
- Inability to Pay or Financial Hardship: In these situations financial hardship means that penalties or interest are causing such hardship that the taxpayer can't provide for basic necessities such as food, rent or medical assistance. Another situation might be if tax interest or penalties are preventing the taxpayer from ever paying taxes owing. This category requires full financial disclosure and extensive and detailed supporting documentation. Taxpayers are expected to borrow money and to sell assets if possible to meet their tax obligations.
- Other Circumstances: For unique situations not covered by the other categories.
How to Submit a Request for Taxpayer Relief
The best way to submit your request is to use the form provided by the CRA:
You can also write a letter and send it to the correct address. Clearly mark "TAXPAYER RELIEF" on the envelope and on your correspondence.
Whether you use the form or write a letter, make sure to include a complete description of the circumstances and your tax information. Make your case in as straightforward, factual and complete a manner as possible. The CRA provides a list of information to include with your request.
More on Taxpayer Relief on Penalties and Interest
For detailed information on Taxpayer Relief Provisions see the CRA Guide Information Circular: Taxpayer Relief Provisions IC07-1.