CRA may grant relief from penalties and interest in cases where the timely satisfaction of a tax obligation was not completed due to:
- extraordinary circumstances;
- actions of the CRA; or
- inability to pay or financial hardship.
In a March 31, 2016 Federal Court Judicial Review, the taxpayer appealed a decision by CRA to refuse relief on penalties and interest. In this case, the taxpayer argued that the CRA agent did not reasonably appreciate the taxpayer's financial difficulties.
The Court agreed with CRA that the concept of financial difficulties for a person is a financial insecurity or lack of what is necessary to meet basic living needs (that is food, clothing, housing, and reasonable non-essential elements).
As it appeared that the taxpayer was able to repay the outstanding tax arrears, without having an undue impact on a lifestyle of a relatively affluent Canadian taxpayer, CRA's decision to deny the request was deemed reasonable.
CRA has also noted that relief may be granted:
- when collection had been suspended due to an inability to pay and substantial interest has accumulated or will accumulate;
- when a taxpayer's demonstrated ability to pay requires an extended payment arrangement. Consideration may be given to waiving 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.
Action Item: In addition to financial hardship, some of the more common reasons why taxpayer relief may be granted include: natural or human-made disaster; death/accident/ serious illness/emotional or mental distress; or civil disturbance. If one of these situations apply, an application for interest and penalty relief may be available. Note that taxes would still be owing.