If you file your taxes late, forget to report income, or have an outstanding balance, the Canada Revenue Agency typically charges penalties and interest on your taxes owed. The penalties start at 5% but can go up to 50% of your balance, and interest accrues monthly until your balance is paid. Over time, these amounts can really add up, but the agency also has provisions that let you apply for a waiver of your interest and penalties.
Situations Eligible for Relief
In most cases, the CRA only waives penalties and interest if you have experienced financial hardship or extraordinary circumstances. If the interest and penalties arose from CRA processing delays or errors, you may also be able to get relief. The CRA defines “extraordinary circumstances” as natural or human disasters, such as floods or fires, but it also includes civil disturbances (such as riots or postal strikes), serious accidents, and emotional distress. If you lost your job or experienced a similar type of event, you may qualify for a financial hardship waiver, but you can also apply for this type of waiver if the interest on your balance is making it impossible to pay or if the interest payments are preventing you from affording food, medical treatment, or other necessities.
Applying for Relief
To apply for relief, use Form RF4288. Along with the form, you need to submit the following information:
- Name and contact info
- Social Insurance numbers, business numbers, and similar business identifiers
- Tax years involved
- Descriptions of what happened and why you’re seeking relief
- Related documents, such as doctor’s statements or death certificates, if you’re requesting relief due to a death in the family
- Financial disclosure documents, if you’re requesting relief based on financial hardships
- History of payments and payment arrangements regarding the balance owed
You can apply for relief of both interest and penalties related to the last 10 tax years. For instance, if you’re applying for relief in 2017, you could request relief on tax returns going back to 2007. For returns from 2006 and further back, you couldn’t request relief.
When reviewing your application, the CRA takes into account the information you provide about the situation, but it also looks at your past relationship with the agency. In particular, it assesses your history of compliance with tax laws, whether you knew about the balance owed, and how quickly you acted to deal with the issue. Whether the CRA approves your request, denies it, or approves part of it, it will issue you a letter. If you don’t agree with the decision, you can request a second review. If you still don’t agree with the second review, you have 30 days to request a judicial review. If penalties and interest are weighing you down, there’s a process to apply for relief. Be as detailed as possible when making your case. Make sure you have documents to back up your claims to increase the chances that the CRA will grant you a waiver. If you have unreported income, you may also want to look into the voluntary disclosure program, which can also help you avoid fees and penalties.