Taxpayer Relief Provisions: Penalties and Interests

The Income Tax Act contains many rules that have corresponding penalties and interests when they are not followed. In certain special circumstances, known as the Taxpayer Relief Provisions (TRP), the Canada Revenue Agency can use its discretion to give the taxpayer a break from these penalties and interests.

There are many circumstances where the TRP may apply, but as a general rule, the CRA will consider granting relief from penalties and interests when taxpayers acting in good faith have experienced unfair treatment due to circumstances beyond their control.

More specifically, the CRA can grant relief from penalties or interest when a taxpayer was prevented from otherwise meeting his tax obligations by extraordinary circumstances, actions of the CRA or financial hardship.

Extraordinary circumstances can refer to a variety of events and are evaluated on a case-by-case basis. Some common examples cited by the CRA are:

• Natural or human-made disasters, such as a flood or fire
• Civil disturbances or disruptions in services, such as a postal strike
• Serious illness or accident
• Serious emotional or mental distress, such as death in the immediate family.

Occasionally, it is the CRA’s actions that prevent a taxpayer from complying with the law. In such cases, the TRP may apply and penalties and interest may be waived. These individual cases are looked at on their own merits as well, though the CRA lists the following as circumstances that can lead to application of the TRP:

• Processing errors or delays by the CRA that result in taxpayers not being informed, within a reasonable time, that an amount was owing
• Errors in CRA material, or incorrect information provided to the taxpayer by the CRA, which led a taxpayer to file a return based on incorrect information
• CRA delays in providing information, resulting in taxpayers not being able to meet their tax obligations in a timely manner
• Undue delays in resolving an objection or an appeal, or in completing an audit.

Financial hardship cannot be simply the inability to pay; it must be combined with another circumstance, such as an illness or the involuntary loss of a job. Also, if the penalties and interests component of an amount owed to the CRA is so large that it is the cause of the taxpayers’ inability to pay, the CRA will consider applying the TRP.

In the same way, if payment of the interest would cause the taxpayer a prolonged inability to provide basic necessities such as food, medical help, transportation, or shelter, then the CRA will consider granting relief.

To submit a request for relief, you can use Form RC4288, Request for Taxpayer Relief – Cancel or Waive Penalties or Interest. You can also send a letter with your request to the CRA.

When seeking relief, it will be your responsibility to explain in detail what special circumstances entitle you to relief and to provide detailed supporting documentation.

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