Publication

3 Routes to Taxpayer Relief

Published:

June 4, 2024

Author(s):

• Matthew Orrell, Lawyer
• Amin Tabrizchi , Student

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Didn’t file your taxes on time – or made a mistake in your tax filings? All might not be lost. There is the possibility of relief from the Canada Revenue Agency (CRA). Here are three routes that could get you there.

1. Voluntary Disclosure Program (VDP)

The first and most accessible is the VDP.

Who can apply? Generally, most taxpayers and tax registrants (individuals, partnerships, trusts and corporations) can apply for relief under the VDP. However, to be eligible for the VDP you must meet all these five conditions:

• You must submit your application voluntarily – and before CRA takes any enforcement action against you or a third party related to you.
• You must include all relevant information and documentation, including all returns, forms, and schedules needed to correct the error or omission – the disclosure must be complete.
• Your error or omission must expose you to a penalty or potential penalty.
• Your information must be at least one calendar year or one reporting period past due.
• You must include payment of the estimated tax owing or request a payment arrangement, which is subject to CRA approval.

When can you apply? The CRA will consider a request only if it relates to a tax year or fiscal period ending in any of the 10 calendar years before the year in which you make a request. For example, a request made in 2024 must relate to a penalty for a tax year or fiscal period ending in 2014 or later. Situations that might be eligible for the VDP include when you:

• Failed to fulfil your tax obligations under the relevant legislation.
• Didn’t file a tax return for a previous year, and it is now late.
• Didn’t report or under-reported your income.
• Claimed ineligible expenses.
• Didn’t remit employee source deductions (for example, Canada pension plan or employment insurance deductions).
• Didn’t file certain information returns (for example, Form T11135, Foreign Income Verification Statement).
• Didn’t report foreign sourced income that’s taxed in Canada.
• Have undisclosed tax liabilities.
• Didn’t charge, collect, or report GST/HST.
• Claimed ineligible GST/HST tax credits, refunds or rebates.
• Provided incomplete information on a tax return.

How do you apply? It’s best to use Form RC199, Voluntary Disclosures Program (VDP) Application. You can alternatively also send a letter by providing the same information on Form RC199 and ensuring:

• The information requested in sections 1 and 2 of Form RC199 is included.
• If applicable to your situation, the information requested in sections 3 to 6 of Form RC199, is included.
• Your letter indicates that you, and your representative if applicable, have read and agreed to the taxpayer declaration in section 7 of Form RC199.
• You, and if applicable your representative, signed the letter.

What relief can you seek? That depends:

• For taxpayers who come forward to correct unintentional errors, CRA won’t charge you penalties or refer you for criminal prosecution related to the information you disclose and/or you might be eligible for a reduced interest rate on the amount you owe.

• For taxpayers who intentionally avoided their tax obligations, CRA won’t refer you for criminal prosecution related to the information you disclose or charge you gross negligence penalties. However, you will be charged other penalties as applicable and CRA won’t give you interest relief. 

• For suppliers that failed to charge and collect GST/HST from a registrant who is entitled to a full input tax credit, CRA won’t refer you for criminal prosecution related to the information disclosed and you might be eligible for full penalty and interest relief on the transactions disclosed.

The CRA can consider a range of factors in whether and what relief to grant:

• The dollar amounts involved.
• The number of years of non-compliance.
• The taxpayer’s or registrant’s sophistication.
• How quickly the taxpayer or registrant acted to correct their non-compliance upon its discovery.
• Whether the disclosure was made after a CRA statement about its intended specific focus of compliance (for example, the launch of a CRA compliance project or campaign) or after broad-based CRA correspondence (for example, a letter issued to taxpayers working in a particular sector about a compliance issue).
• Whether efforts were made to avoid detection using offshore vehicles or other means.

2. Request for Taxpayer Relief from Interest & Penalties

A second route is via a request for relief from interest and penalties that apply. Notably, you can access this route even after CRA takes enforcement action against you or a third party related to you.

Who can apply? Taxpayers can apply when events beyond their control prevent them from meeting their tax obligations.

When can you apply? The CRA can grant relief from penalty or interest when the taxpayer was prevented from meeting their tax obligations by:

• Extraordinary circumstances, for example, a natural disaster like a flood or fire, a postal strike, or a serious illness or accident.
• CRA’s actions, for example, the CRA provided you with incorrect information or made a processing error.
• Inability to pay or financial hardship.
• “Other circumstances”. This is really a “catch-all” to cover circumstances that don’t fall into any of the other categories, and its application varies depending on the taxpayer’s particular circumstances. However, demonstrating the error was beyond your control or you were diligent and still had errors is often sufficient.
• With respect to taxpayer relief from penalties, the CRA will consider a request only if it relates to a tax year or fiscal period ending in any of the 10 calendar years before the year in which you make a request. For example, a request made in 2024 must relate to a penalty for a tax year or fiscal period ending in 2014 or later.

• With respect to taxpayer relief from interest on a balance owing for any tax year or fiscal period, the CRA will consider a request only on the amounts that accrued during the 10 calendar years before the year in which you make a request. For example, a request made in 2024 must relate to interest that accrued in 2014 or later.

• You’re generally responsible for errors or delays of your representative or third party acting for you for tax-related matters (for example, your accountant). However, the CRA might consider granting you relief because of errors or delays of your representative or a third party in exceptional situations. A common example is where your representative experiences serious health issues and fails to complete your filing in a timely manner. 

How do you apply? You must provide a detailed, complete, and accurate description of your circumstances to explain why you’re requesting relief and explain how your circumstances prevented you from making a payment when due, filing a return on time or otherwise meeting your tax obligations. The CRA recommends you submit your request for relief using Form RC4288, Request for Taxpayer Relief – Cancel or Waive Penalties and Interest. Form RC7288 also exists for Selected Listed Financial Institutions – Request for Taxpayer Relief – Cancel or Waive Penalties or Interest Related to the GST/HST or the QST, or Charges Related to the QST

When circumstances beyond your control, actions by the CRA, an inability to pay, or financial hardship prevent you from meeting your tax obligations, the CRA will consider several factors when determining whether to cancel or waive penalties and interest:

• Your tax return filing and payment history.
• Whether you knowingly let a balance owning exist that resulted in additional interest.
• Whether you took reasonable care in managing your tax affairs.
• Whether you acted quickly to correct any delay or omission.

What relief can you seek? The CRA will cancel the relevant penalties and interest from your account and will generally issue a refund for any of the cancelled penalties and interest you paid. However, if you have debts from other tax years, other related tax accounts or outstanding tax returns, CRA could apply your refund to other debts or hold it until you file any past due returns.

3. Remission

A third route to relief is remission. However, remission is discretionary and CRA will only consider it in “exceptional circumstances” so it’s rarely granted. CRA examines each request to determine if a remission review is appropriate in the circumstances. If so, CRA undertakes an in-depth review process. Very few requests result in remission being granted. 

Who can apply? Any taxpayer can request a remission review. To be eligible apply, you must meet these criteria:

• You’ve already been assessed the amount(s).
• You’ve already pursued all other options to address the amounts owing.
• You don’t have any unresolved: requests to address the amounts owing; objections or appeals; requests for interest and/or penalty relief; applications under the VDP; or litigation.
• You aren’t in open or completed insolvency proceedings (consumer proposal or bankruptcy) that affect your obligation to pay the amount(s).
• You can provide complete background information and documents to support the circumstances of your request.

When can you apply? Generally, before you apply you must pursue and conclude all other options available at the CRA or under statute to address the amount(s) you owe before requesting remission. Situations that constitute exceptional circumstances could include:

• Extreme financial hardship.
• Financial setback with an extenuating factor.
• Mistake made by the CRA.
• Unintended results of legislation.

However, CRA will not typically undertake a review where:

• The circumstances affect the whole population (for example an economic downturn).
• The circumstances are temporary (for example, you currently have limited income because you’re taking time off work for a specific life event).
• The remission request is an attempt to revisit an audit, objection, consent to judgment, minutes of settlement, or a court decision because you were dissatisfied with the results.
• You’re trying to use remission for retroactive tax planning purposes because you later realized that there was a more beneficial alternative.

How do you apply? You can apply by submitting a letter or, in the case of a remission review on the basis of financial hardship by submitting Form RC921 Request for a Remission Review – Financial Disclosure Form for Individuals. It’s important that you include any and all relevant documentation in your request. The CRA reviews remission requests on the broad terms set out in section 23 of the Financial Administration Act, in particular whether collection of the tax or other debt or enforcement of the interest or penalty is unreasonable or unjust, or if remission is otherwise in the public interest. Only the Governor in Council can issue a remission order. If the CRA decides your circumstances could warrant remission, it will send your request to the Minister of National Revenue who might make a recommendation to the Governor in Council for a decision Notably, requesting a remission review generally does not stop collection actions. In addition, interest will continue to accrue on outstanding amount(s).

What relief can you seek? If remission is granted, the CRA will apply a credit in the specified amount to your account. If the credit results in a refund, that refund will first be applied to any other amounts you owe or are about to owe. A remission order does not result in a reassessment. The Financial Administration Act doesn’t permit refund interest on remitted amounts.

Please contact your McInnes Cooper lawyer or any member of our Tax Solutions Team @ McInnes Cooper to discuss whether – and how – you can apply for taxpayer relief.

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