The Income Tax Act had rules that used to be called `Fairness Provisions’ which were actually `Taxpayer Relief Provisions’. They provided the CRA with the authority to waive some requirements of the Income Tax Act. The taxpayer relief provisions have given the discretionary powers to the CRA to allow refunds of tax reductions to individuals, once they are requested after the normal assessment periods. CRA can waive or cancel the interest and the penalties.
If extra-ordinary circumstances make it difficult for an individual to pay their taxes, it is possible to submit a request in writing to the CRA, requesting for interest and penalties to be cancelled and waived. The taxpayer relief provisions that have been made in the income tax legislation in Canada have allowed the Minister of National Revenue to grant partial or full taxpayer relief from interest or penalty payments.
To get the CRA to acknowledge your request for taxpayer relief, it is wiser to file your tax returns in any case even if you are not able to pay the taxes in full. It would be advisable to have the tax returns filed before the CRA looks at your application for taxpayer relief from interest and penalties.
The deadline for requesting taxpayer relief for penalties and interest is ten years. A tax relief request has to be made within a ten-year period from the end of a calendar year in which the tax year ended for the taxpayer relief to be considered by the CRA.
Note, CRA has recently changed the ten-year deadline by granting tax relief for last ten years’ interests even if the tax debts was generated in the years that are earlier than past ten years.
There are various reasons why CRA would consider to cancel the tax penalties or interest. There are four situations when taxpayer relief is considered:
- Extraordinary Financial Circumstances – These situations would include disasters like floods or fire, where your financial records may be destroyed due to these natural events. Other circumstances could be civil disturbance or riots with disruption in normal services like postal strike. Other situations that qualify are serious accident or illness suffered by the concerned taxpayer or a case of serious mental or emotional distress as a result of a death in the family. Certain types of divorce cases may also fall into this category.
- CRA Actions – These are situations which may involve delays on the part of CRA. There could be cases where taxpayers are not informed on the tax amount owed, within a reasonable time before the filing deadline. The taxpayer could also be given some incorrect information by the CRA. Other delays could be concerning the resolution of an objection or in the audit completion.
- Financial Hardship – There could be inability to pay on part of the taxpayer and an appeal could be made stating that the penalties or the interest are causing financial hardship for the taxpayer and that he or she is unable to afford basic necessities like food, medical aid or rent as a result of the tax charges. Complete financial disclosure with a detailed support documentation is required in such taxpayer relief appeal cases.
- Other Circumstances – These could be some unique situations, not covered by other mentioned categories, which are preventing a taxpayer from making the tax payments.