Under the Income Tax Act there are certain rules known as the “Taxpayer Relief Provisions” (formerly called “Fairness Provisions”), which provide the Canada Revenue Agency with the discretion to waive certain requirements of the Act. In particular, these provisions give the Canada Revenue Agency the discretion to grant individuals refunds or reductions in tax that are requested after their normal reassessment periods to waive or cancel interest and penalties, and to remedy missed or late elections or to revoke elections. These provisions, along with Canada Revenue Agency’s administrative position as to when it may or may not apply them, are outlined in this Bulletin.
Reassessments and Refunds Beyond Normal Reassessment Period
An individual’s “normal reassessment period” for a taxation year is the period that ends three years after the mailing of the notice of assessment for that year. It is during this period that the Canada Revenue Agency may reassess an individual’s tax return for the year (the period is extended in certain cases, such as where the individual files a waiver or carries back a loss to the year). However, the Canada Revenue Agency has the discretion to reassess an individual favourably beyond the normal reassessment period for the purpose of determining the amount of a refund or the reduction of an amount of tax payable. A request by the individual must be made within TEN YEARS after the end of the relevant year. Similarly, a refund of tax for a year may be provided if a tax return was not originally filed but is filed within TEN YEARS after the end of the relevant year.
The Canada Revenue Agency has stated that it may issue a refund or reduce the amount owed if it is satisfied that such a refund or reduction would have been made if the return or request had been filed or made on time. The Canada Revenue Agency further states that individuals can make a request if they were not aware of, or missed, claiming a deduction or a non-refundable tax credit that was available for the year. Individuals can also ask for refunds or reductions of amounts owing for refundable tax credits such as provincial tax credits that have not been claimed. Also, payroll deductions may have resulted in an overpayment of taxes for which a refund can be requested.
Cancellation or Waiver of Penalties and Interest
The Canada Revenue Agency has the discretion to waive or cancel all or any part of any penalty or interest payable under the Act. This discretion extends to all taxpayers and not just individuals. A request by the taxpayer must be made within ten years after the end of the relevant year.
The Canada Revenue Agency has stated that it may waive or cancel penalties and interest in EXTRAORDINARY CIRCUMSTANCES, such as those relating to natural or man-made disasters including flood or fire; civil disturbances or disruptions in services, such as a postal strike; a serious illness or accident; or serious emotional or mental distress, due to a death in the immediate family.
The Canada Revenue Agency also provides that it may waive or cancel a penalty or interest that arose primarily because of actions of the Canada Revenue Agency including: processing delays that result in the taxpayer not being informed, within a reasonable time, that an amount was owing; errors in material available to the public, which led taxpayers to file returns or make payments based on incorrect information; incorrect information provided to a taxpayer, such as where the Canada Revenue Agency wrongly advises a taxpayer that no installment payments will be required for the current year; or other errors in processing.
Furthermore, the Canada Revenue Agency may cancel interest where the taxpayer has an inability to pay or is experiencing financial hardship. For example, it may cancel interest if the collection of tax has been suspended due to the taxpayer’s inability to pay and substantial interest has accumulated or is expected to accumulate. The Canada Revenue Agency may also cancel interest where a taxpayer’s ability to pay requires an extended payment arrangement in respect of the taxes owing. It may also cancel interest if the payment of interest would cause a prolonged inability to provide basic necessities such as food, medical help, transportation, and shelter.
Late, Amended or Revoked Elections
The Canada Revenue Agency has the discretion to extend the time for making a “prescribed election” under the Act or to allow a taxpayer to amend or revoke a prescribed election already made. The taxpayer must make the request within the years after the end of the year in which the election was made or should have been made. A list of “prescribed elections” is found at the end of Canada Revenue Agency Information Circular 07-1, which can be found on their website at http://cra.gc.ca/E/pub/tp/ic07-1/README.html.
Note that not all elections under the Act qualify for this treatment.
The only downside is that a taxpayer is liable to a penalty if the Canada Revenue Agency accepts a late, amended, or revoked election. The penalty is $100 for each complete month from the original due date for the election to the date of the taxpayer’s request, to a maximum of $8,000.
The Canada Revenue Agency has stated that it will not accept a request if it is reasonable to conclude that the request was made for retroactive tax planning purposes (for example, trying to take advantage of changes to the law enacted after the due date of the election), if adequate records do not exist, or if it is reasonable to conclude that the taxpayer made the request after being negligent or careless in complying with the law.
Conclusion
These relatively new provisions provide all taxpayers with the opportunity of some significant income tax reductions as well as very significant reductions or eliminations of interest costs.
There is much flexibility in these new provisions. Let us review your situation (free of charge) and advise you if it’s advantageous to apply for a REFUND under these new provisions.
Please call Joe Truscott today (at 905 528 0234 Ext 224) to set up a free consultation session to discuss your particular situation or email Joe at [email protected].
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