Can't Pay Your Taxes? A Primer On When CRA Grants Taxpayer Relief (TPR) On Penalties, Interest

• Jurisdiction: Canada
• Law Firm: Rotfleisch & Samulovitch P.C.
• Subject Matter: Tax, Income Tax, Tax Authorities
• Author: Mr David Rotfleisch
• Published date: 26 May 2023

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:

1. Extraordinary circumstances: This includes events like natural disasters, postal strikes, serious illnesses, or deaths in the immediate family.
2. 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.
3. 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)...