Five Reasons to Get CRA Penalties and Interest Waived

It’s back to school time and families are spending money getting ready for the big day; registration for sports activities seems to be more expensive that ever; and now this: you find you owe money to CRA!

That can certainly be an expensive way to end the summer. But in certain circumstances, penalties and interest owed to CRA may be waived. You may qualify in the following instances:

1. CRA has made an error or has had significant delays in responding to you
2. You have suffered a natural or man-made disaster, such as a fire or flood
3. There has been a death or a serious illness in the family in which you have suffered physical, mental or emotional distress 
4. There has been a civil disturbance that delayed your compliance, such as a postal strike
5. Financial hardship: personally, there has been a circumstance that has affected your ability to pay for the necessities of life or reasonable non-essentials; or in business, the continuity of business operations has been jeopardized so significantly that it threatens jobs and the community at large.

To request taxpayer relief requires completion of a newly updated form, RC4288 Request for Taxpayer Relief – Cancel or Waive Penalties or Interest, and lots of documentation to support the claim. But it can be well worth it.

Often the penalties and interest can be more than the taxes owing. Late filing penalties, for example, are 5% of the amount due (10% if there is a second late filing within three years). An interest penalty is also applied to late filers: that’s 1% a month for 12 months in the first instance; 2% per month for 20 months in the second. Often gross negligence penalties are also applied: 50% of the amount owing. In cases of deliberate fraud, the penalties added can be up to 200% of the taxes sought to be evaded. Monthly interest rates charged at the prescribed rate plus 4% are added on top of all of this.

The first line of defence for getting out of potential trouble is to contact CRA before they contact you to charge the penalties in the first place. Through a “voluntary disclosure” you can often save yourself a lot of stress and money. However, if you are already facing the music, a request for taxpayer relief can be an important financial savior.

Be prepared to describe all the events leading up to the hardship that affects you or your business, and any steps you have taken to avoid the hardships or correct the issues with CRA. Supporting documents must include details of CRA delays or errors, fire/flood reports, doctor’s certificates, insurance claims, financial statements including loans, mortgage statements, bank accounts, credit card bills, rental statements, or balance sheets and income and expense statements.

In cases like these, it’s important to get assistance from an experienced DFA-Tax Services Specialist™ who can represent you to CRA.

Evelyn Jacks is President of Knowledge Bureau and one of Canada’s most prolific financial authors of 52 books, including her most recent, Family Tax Essentials, How to Build a Wealth Purpose with a Tax Strategy.

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