Tax Debt Relief

CRA starts charging interest on the balance of tax owing that remains unpaid after the deadline. If you did not file your return on time, CRA will additionally impose a late filing penalty. We can help you to avoid or minimize the unfair interest and penalties levied on you.     

How can I avoid interest and penalties under Taxpayer Relief program of CRA?

Under the legislative provision of Taxpayer Relief, CRA has the authority to cancel or waive interest and penalties.  CRA will consider relief from interest and penalties for the following situations:

1. Extraordinary circumstances,
2. Financial hardship or inability to pay,
3. Errors or mistakes originating from actions of CRA

CRA may also consider other situations that do not fall in the above but are reasonable to grant a relief.  In order to file a relief request, you have to have filed all your tax returns.

A. Extraordinary circumstances: following are the typical examples of extraordinary circumstances that could have prevented you to meet your tax obligations: 

• Natural or human-made disasters (for example, flood, fire)
• Serious illness or accident (for example, cancer, stroke, motor vehicle accidents)
• Serious emotional or mental distress (for example, depression, death of a loved one)
• Civil disturbances and disruptions (for example, postal strike).

B. Financial hardship or inability to pay: CRA will consider waiving or canceling interest wholly or partially in circumstances with confirmed inability of the taxpayer to make the required payments.  Those circumstances are:

• Taxpayer is unable to finish a payment arrangement due to interest being a significant portion of the payments
• Payment of interest causes the taxpayer inability to provide the basic necessities such as food, shelter, transportation and medical
• A suspension in the collections has occurred due to the taxpayer’s inability to make payments because of loss of employment or other financial hardship.

C. CRA originated causes or errors: CRA will also cancel or waive penalties and interest if they were arisen primarily from CRA actions, for example:

• Processing delays or errors
• Incorrect information given to the taxpayer
• Delays in resolving a tax appeal or objection, or completing an audit.

How many years can I go back for a relief request?

CRA will consider your relief request for interest and penalties if they are connected to a tax year that ends in any of the preceding 10 calendar years before the year you make your request.  For example, if you make a request in 2020, the penalty or interest must be related to a tax year ending in 2010 or the subsequent years. 

What are the CRA's interest and penalties on my back taxes?

Interest

CRA charges daily compound interest on outstanding taxes and penalties. 

What does compound interest mean? CRA computes the interest daily on the principle tax owing, and adds the calculated daily interest to your outstanding balance. The following day, CRA calculates the interest on the amount of the previous day's outstanding balance that includes both the principle tax owing and the interest. Simply put, the compound interest means that you will have to pay interest on the interest. 

This set of calculations of compound interest continues daily until the debt is paid off; that can be very costly! With the compound interest, the interest portion of your tax debt, in a matter of time, can become larger than your principal tax owing. You can be shocked to see how your small taxes quickly became serious and graver when ignoring them.

Penalties

There are several types of penalties, which are:  

Late-filing penalty:  CRA will assess a late-filing penalty if you did not file your return on time. The penalty is 5% of the unpaid tax plus 1% of the unpaid tax for each complete month, that the return remains unfiled up to a maximum of 12 months. 

If CRA has issued a demand to file letter and assessed a failure to file penalty in any of the three preceding tax years, the late filing penalty increases to 10% of the unpaid tax plus 2% of the unpaid tax for each complete month, the return was late up to maximum 20 months.

Late filing penalties can add up to as high as 50% of your tax balance owing, which can strain your budget, especially if you have multiple years of unfiled back taxes. 

Our tax tip: you can avoid a late filing penalty by filing your return on time even though you cannot afford to pay the balance owing.

 Repeated failure to report income penalty: if you failed to report an amount on current year return and also failed to report an amount on previous three years, CRA will assess a repeated failure to report income penalty.

Omissions or false statements penalty: if you knowingly or negligently made false statements or omissions in reporting income; CRA will charge 50% penalty on the understated tax or overstated credits related to false statements or omissions.

Tax penalties can be severe!  

If your situation poses a penalty risk, you should seek the advice of a professional.  Please contact us as soon as possible before it is too late for the opportunity to avoid or mitigate the potential penalties. In some circumstances, Voluntary Disclosure can be the better option to avoid penalties. We will explore your options under your specific circumstances  and provide our advice with an alternative that suits your needs best. See Voluntary Disclosure  

How can we help you?

Taxpayer relief is not a single process of filing a request. It may involve complexities down the road that can be handled best by a seasoned tax professional. Tackling this process on your own can be frustrating with futile results.  With the help of a competent professional, you can achieve the most desirable outcome possible without going through the stress of dealing with the CRA agents on your own. 

We are highly competent with long years of experience in successfully dealing with CRA on behalf of our clients on a wide range of tax issues. We fight for your rights to resolve your tax problems as soon as possible.  

Let us find what we can do for you in a confidential and friendly conversation.

Contact us today to schedule a free, no-obligation, and confidential consultation to learn your options for the relief. 

Take advantage of our free, no-obligation consultancy session and improve your financial life by learning the complexities of your tax matters and the solutions from a professional!