If you file your taxes late, forget to report income, or have an outstanding balance, the Canada Revenue Agency (CRA) typically charges penalties and interest on the unpaid portions of your tax bill. The penalties start at 5% for unpaid taxes, but can go up to 50% of your balance if you understated your taxes or overstated your credits while filing a false tax statement. These penalties include individual income and income from a business. Interest accrues monthly until you pay the balance in full. Over time, these amounts can really add up, but the CRA also has provisions that let you apply for a waiver of your interest and penalties.
Situations Eligible for Relief Through Form RC4288
In most cases, the CRA only waives penalties and interest if you’ve 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. The agency also includes civil disturbances, such as riots or postal strikes, serious accidents, and emotional distress as extraordinary circumstances.
In terms of a business hardship, Form RC4288 defines this as when the continuity of the business, employees’ jobs, and the welfare of the community are in jeopardy. You an also apply for a Form RC4288 waiver if the interest on your outstanding balance prevents you from affording food, clothing, shelter, medical treatment, or other necessities.
Applying for Relief From Penalties and Interest With Form RC4288
To apply for relief from penalties and interest, submit Form RC4288. Along with the form, you need to submit the following information:
- Name and contact information
- 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 hardship
- History of payments and payment arrangements regarding the balance you owe
Application Deadlines for Form RC4288
You can apply for relief of both interest and penalties related to the last 10 tax years. For instance, if you apply for relief in 2019, you can request relief on tax returns going back to 2009, but you can’t request relief from bills owed on returns from 2008 and further back.
Approval Process After Submitting Form RC4288
When reviewing your application, the CRA takes into account the information you provide about the situation and your past relationship with the CRA. In particular, the CRA assesses your history of compliance with tax laws, whether you knew about the balance you owe, and how quickly you acted to deal with the issue. Whether the CRA approves your request, denies it, or approves part of it, the agency typically issues a letter explaining its decision. 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 in a court of law.
If penalties and interest on your tax bill make it hard for you to live or operate your business, you have a recourse to seek relief. Be as detailed as possible when making your case, and make sure you have documents to back up your claims to increase the chances that the CRA grants 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.
Filling out a Form RC4288 can help put you and your business back in good standing with the CRA. It can also start the path to financial wellness as you seek to get back to earning a steady income. QuickBooks Online can help you maximize your tax deductions. Keep more of what you earn today.