Taxpayer Right Tips: Relief & Fairness Provisions

Dr. Dean Smith & Evelyn Jacks

During these tough financial times, when loan deferrals end and taxes are due, many more Canadians will face financial hardship. That makes the last quarter of the year an important one for proactive client conversations. What can tax and financial advisors do? If the issue is a disputed tax reassessment an important tool is to use the Taxpayer Relief Provisions.  

Every taxpayer has rights that include access to taxpayer relief provisions in specific cases, as well as the opportunity to come forward to comply with the act in cases of delinquency.  Here are some of the details, simplified:

FAIRNESS REQUESTS – USE FORM RC 4288.  There are 4 categories of requests that may result in the waiver of penalties and interest by CRA some of which are particularly relevant in light of the second pandemic wave, the current political environment and the extreme weather conditions faced by some taxpayers:

1. Extraordinary circumstances:

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

Actions of the Canada Revenue Agency (CRA):It has been a most difficult year to keep up with the rapid-fire changes in taxpayer responsibilities as pandemic relief provisions emerged.  What the rules were and how to properly follow them was not always well explained and website updates have been either late or unrelentingly frequent, making if complex and difficult to comply with the law.  If any of the following affected your clients filing outcomes, a taxpayer relief application may be in order:  

• Errors in information available to the public, which led taxpayers to file returns, make payments based on incorrect information
• Incorrect information provided to a taxpayer or errors in processing
• Processing delays resulting in taxpayer not being informed, within a reasonable time, that an amount was owing
• Delays in providing information, such as when a taxpayer could not make the appropriate instalment or arrears payments because the necessary information was not available
• Undue delays in resolving an objection or an appeal, or in completing an audit

2. Inability to pay or financial hardship:Take note of the following circumstances that would allow CRA to waive interest costs.

• When payment of the accumulated interest would cause a prolonged inability to provide basic necessities (financial hardship) such as food, medical care, transportation, or accommodation
• When a taxpayer cannot make a reasonable payment arrangement because the interest charges absorb a significant portion of the payments, cancelling all or part of the interest for the period from when payments start until the amounts owing are paid may be considered, as long as the agreed payments are made on time and compliance with the act is maintained
• When collection has been suspended due to an inability to pay and substantial interest applies to the outstanding amount
• When a taxpayer's demonstrated ability to pay requires an extended payment arrangement, consideration may be given to cancelling 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 the taxpayer is in compliance with the Income Tax Act

3. Other circumstances. An example may be a business  experiencing extreme financial difficulty.  If the  enforcement of penalties would jeopardize the continuity of that business’s operations, the jobs of the employees, and the welfare of the community as a whole, providing relief from the penalties may be considered.

Tips When Applying for Taxpayer Relief

Apply early to ensure your rights for relief from interest and penalties. CRA may grant relief from interest costs that accrued during a 10-year period; currently from January 1, 2010, to December 31, 2020. The interest that accrued before January 1, 2010, is not eligible for relief.

Protect appeal rights.  Note that CRA may issue in a later year an assessment or reassessment for a tax year under audit. Or an objection or appeal filed by a taxpayer may not be resolved as the 10-year time limit approaches. CRA advises the taxpayer to forward a “protective request” for potential relief to make sure the request is made before the 10-year time limit expires. Any details and supporting documentation needed to complete the request can be sent later, after the audit or formal dispute process is done.

Pay First? CRA continues to charge compound daily interest at the prescribed rate on any amount owing when a taxpayer makes a request for relief. A taxpayer can avoid more interest charges by paying the amount owing in full. CRA will later pay refund interest on the penalty and interest amounts previously paid and cancelled.

Help your clients be prepared for a financial review from the CRA.  Help to provide information to support:

• Income and expenses
• Assets and liabilities
• The ability to borrow funds and sell assets
• Show actions and efforts to pay amounts owing

Additional educational resources: This is just a preview of some of the critical  information that was presented during the September 30 Virtual CE Summit. You can still gain access to this important content by taking the online Financial Fallout Course, only $695.  Plus you will  earn 6.5 CE credits.

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