Introduction

If you have income tax debts owing to the Canada Revenue Agency, you may want to look into filing an application under the Taxpayer Relief Provisions.  Section 220 of the Income Tax Act allows Canadians with tax liabilities to apply for relief from penalty and interest.  Canada Revenue Agency calculates interest compounded daily so interest will increase substantially at a very high cumulative rate.  These provisions could be a real money saver if your circumstances fit with the income tax legislation.

Comments

Applications for Relief can be made for the following reasons:

1. reduction or remission of penalties and arrears interest
2. waiver of currently accruing interest
3. acceptance of amendments or elections that are beyond the statute barred date and that may result in a refund or reduction of amounts payable

The legislation sets out three separate categories for applications under Relief:

1. Financial Hardship
2. Extraordinary Circumstances
3. Actions by the Canada Revenue Agency

Financial Hardship

The Canada Revenue Agency defines financial hardship as any situation where the requirement to pay penalties and interest, in addition to income tax amounts, would jeopardize the taxpayer’s ability to meet basic financial needs.  By “basic financial needs”, the Canada Revenue Agency explains these to mean such things like heat, hydro, rent/mortgage, food, medical needs and transportation.  Sometimes taxpayers are in situations that may not fit specifically into a “hardship” scenario but nonetheless are faced with the prospect of being unable to pay their income tax, penalty and interest within a reasonable time frame.  These types of situations are referred to as inability to pay. An inability to pay case would apply where a taxpayer might be able to meet basic needs, but has no likelihood of paying the debt off over a reasonable time period and where interest may be accruing at a faster rate than the taxpayer can service the debt outstanding.

Extraordinary Circumstances

Extraordinary Circumstances refers to events or situations that limit or restrict a taxpayer’s ability to meet tax obligations.  The legislation provides examples such as natural disasters i.e. fire or flood.  However, this category is not limited to natural disasters.  Any situation that is likely to have caused serious emotional or mental distress and that can be demonstrably proven to have impacted a taxpayer’s ability to file or pay on time could be grounds for an application for Taxpayer Relief.  This might include things like serious injury or illness, death of a loved one, marital separation or divorce, incarceration, addiction issues or any other personal situation that limited someone’s ability to fulfill their tax obligations.

Actions by Canada Revenue Agency

Of the three categories, Actions by the Canada Revenue Agency is probably the least used and understood by taxpayers.  This category refers to any situation or circumstance where the taxpayer has incurred a penalty or interest as a result of actions taken by the Canada Revenue Agency.  Typically this category would be used when someone from the Canada Revenue Agency has made an error or provided incorrect information to a taxpayer that then resulted in the application of penalty or interest charges.  The more frequent use of this category actually involves inaction by the Canada Revenue Agency.  Sometimes delays in processing a return, completion of an audit or appeal, result in interest charges through no fault of the taxpayer.

Taxpayer Relief Application Form

The RC4288 Taxpayer Relief Application Form on the Canada Revenue Agency’s website can be completed and submitted through your local tax service office.  Alternatively a letter clearly outlining the reason for your request would also be acceptable.  Make sure to include your full name, account number, the income tax years involved and any supporting documents that would attest to statements you are making.  If you’re applying on the basis of financial hardship, the Canada Revenue Agency will expect to see an income, expense, asset and liability statement detailing your financial circumstances using their prescribed forms.

Although filing a request for relief is quite simple, obtaining relief can be complicated.  The legislation is somewhat counter-intuitive so if you’re unsure of what to say or how to say it, we recommend contacting your Chartered Accountant who can guide you through the process.  Information about this legislation can be found in the Canada Revenue Agency’s publication “IC-071”

Conclusion

Joseph Truscott has been reviewing and filing Applications for the Taxpayer Relief Provisions for many years.  In addition, Joe is a member of the Hamilton & District Tax Practitioners group and meets with the Canada Revenue Agency and other professionals of this Committee and obtains valuable insight on a monthly basis.  With Joe’s years of experience in completing the above Application and his expertise, you are assured that you will obtain the most beneficial results when applying for Taxpayer Relief under these provisions.

If you have any questions with respect to the above or any other income tax matters, please contact Joseph A. Truscott, Chartered Accountant at (905)528-0234 or e-mail Joe at [email protected].

February 2012