What is the taxpayer relief application?
When a taxpayer cannot meet tax payment deadlines or fulfill other obligations set by the Canada Revenue Agency (CRA) due to personal misfortune or uncontrollable circumstances, penalties and interest are typically imposed by the CRA. Luckily, subsection 220(3.1) of the Income Tax Act grants the CRA the discretion to waive interest or penalties payable by taxpayers at their own discretion or upon the taxpayer's request. This waiver, formerly known as a fairness application, is now typically referred to as taxpayer relief or TPR. Still, it's important to note that the CRA cannot waive amounts that originated more than ten calendar years ago. Beyond the wording of this provision, the Income Tax Act does not provide further details on the requirements for relief.
To fill in these gaps, the CRA has issued Information Circular IC07-1R1. Although not legally binding, this Circular serves as a guideline for taxpayers and CRA officials regarding the circumstances in which the CRA is willing to provide relief.
The Circular outlines three primary situations that warrant taxpayer relief:
- Extraordinary circumstances: This includes events like natural disasters, postal strikes, serious illnesses, or deaths in the immediate family.
- Actions of the CRA: Relief may be granted in cases of processing delays, errors in the CRA's published material, or other mistakes made by the CRA.
- Inability to pay or financial hardship: Relief may be considered when the payment of accumulated interest would result in a prolonged inability to meet basic necessities.
The Circular also explicitly states that these three situations are not exhaustive, meaning that relief may be granted in additional circumstances beyond those specifically mentioned.
Taxpayer relief may only be granted after the objection stage under certain circumstances
At the notice of objection stage, taxpayers may seek relief from penalties and interest under Subsection 220(3.1) of the Income Tax Act, but administrative details are largely left up to the Canada Revenue Agency's (CRA) discretion. The CRA policy is to grant relief in response to extraordinary circumstances or actions of the CRA, at least informally, at the objection or appeal stage. However, the relief sought on other grounds cannot be considered until the objection or appeal is resolved. This issue of delayed consideration for taxpayer relief was raised in the recent court case of Asare v. Canada (National Revenue) (2022 FC 1676).
In the Asare case, the CRA reassessed the taxpayer's personal tax returns, and the taxpayer filed notices of objection to the CRA reassessments. The taxpayer agreed to accept the CRA's revised assessment of his net income on the condition that gross negligence penalties be waived or cancelled. The appeals officer declined to change the assessment offer and suggested the taxpayer file a relief request. The taxpayer sought judicial review of the appeals officer's decision, but the court held that the application was premature because a formal relief request had not been made to the taxpayer relief division.
The court noted that the appeals officer's obligation to exercise discretion did not arise for two main reasons: (1) the taxpayer failed to make the relief request, and (2) the taxpayer failed to provide information to support their claim of financial hardship. The court also stated that even if a formal relief request had been made, the appeals officer would not have had a duty to exercise discretion as long as the CRA's procedure was procedurally fair.
Pro tax tips - A request for taxpayer relief must be made before settling the objection
The key takeaway from the Asare decision is that a formal request for relief must be made to the taxpayer relief division before an appeals officer can consider penalty or interest relief as a means of settling an objection. It is also unclear why the appeals officer declined to consider the request for taxpayer relief in this case. Therefore, it is highly recommended that a taxpayer consult with an experienced Canadian tax lawyer to find the best possible solution regarding a taxpayer relief dispute.
FAQ
What are potential circumstances that may warrant taxpayer relief:
There are mainly three categories that may warrant taxpayer relief based on the CRA's information circular, but the list is not exhaustive:
- Extraordinary circumstances: This includes events like natural disasters, postal strikes, serious illnesses, or deaths in the immediate family.
- Actions of the CRA: Relief may be granted in cases of processing delays, errors in the CRA's published material, or other mistakes made by the CRA.
- Inability to pay or financial hardship: Relief may be considered when the payment of accumulated interest would result in a prolonged inability to meet basic necessities.
When will the taxpayer relief be granted?
The CRA may grant taxpayer relief at the objection or appeal stage if the relief is made based on the extraordinary circumstances or actions of the CRA. However, for other grounds, the CRA will generally not grant the relief until the objection or appeal stage is resolved.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
