Can Not Pay Tax Liabilities? Taxpayer Relief Provisions Can Help

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Can Not Pay Tax Liabilities? Taxpayer Relief Provisions Can Help Posted: 22 Sep 2010 04:30 AM PDT Despite widespread proliferation of information through the inter-net, television, radio and print media, far too many Canadians remain unaware of a critical tool for their financial health. Canadian taxpayers who carry T1 Personal Income tax liabilities and businesses with GST, HST, Payroll Deduction, or Corporate Tax liabilities may avail themselves of the Taxpayer Relief Provisions of the Income Tax Act. What are the Taxpayer Relief Provisions? The Taxpayer Relief Provisions allow taxpayers to apply to Canada Revenue Agency for remission or reduction of penalty and interest on tax liabilities. Penalties are levied against individuals or companies for late or incorrectly filed tax returns. Interest is charged on tax amounts that are not remitted by due dates. Canada Revenue Agency does not use a simple interest calculation. Interest amounts are calculated compound daily. This means liabilities can add up very quickly and make what once seemed like a manageable debt, unmanageable. Under what circumstances could taxpayers apply for relief? There are three main categories of application. Financial Hardship (including Inability to Pay) Extraordinary Circumstances (or Circumstances Beyond the Taxpayer's Control) Actions by the C.R.A. (including Departmental Delay) Relief from penalty and interest may be granted in circumstances where payment of these amounts may jeopardize a taxpayer's ability to obtain basic necessities such as food, shelter, transportation or medical assistance. Other circumstances might include scenarios where the interest accrues faster than the taxpayer's ability to service the debt, or where a taxpayer requires an extended payment arrangement. In these sorts of circumstances relief is conditional upon compliance with the Income Tax Act being maintained and payments being made on time. Relief is usually granted forward from the point at which a taxpayer begins making payments under a payment arrangement. What is Considered Extraordinary Circumstances? Extraordinary Circumstances or Circumstances Beyond a Taxpayer's Control is typically defined as extraordinary events or situations that prevented a taxpayer from meeting their tax obligations. This might include things like a fire or flood destroying books and records necessary for filing, a catastrophic event that prevented the taxpayer from filing or paying, chronic illness, and/or serious emotional or mental distress. Actions by the C.R.A. would include any error or action taken by the C.R.A. that resulted in unwarranted penalty and interest charges being applied to the taxpayer's account. There are situations where the Agency inadvertently provides taxpayers or their representatives with incorrect information. Sometimes this results in penalty or interest charges. A more common scenario would involve inaction by the C.R.A.  Departmental delays completing audits or providing taxpayers with information often result in penalty and interest charges through no fault of the taxpayer. Interest can add up quickly The Agency uses specific criteria for determining who qualifies for relief. Among the factors considered are: the taxpayer's compliance and payment history, whether or not the taxpayer knowingly allowed interest to accrue, whether or not the taxpayer has taken reasonable care with their tax matters, and whether or not the taxpayer acted quickly to remedy delays or omissions. Simply applying for relief from penalty and interest is not a guarantee that one will be granted relief. Applications may be made by way of a letter that provides narrative explanation as to how and why penalty or interest came to be applied, and how and why the circumstances fit with the legislation. Applications may also be made by completing an RC4288 form available through the Canada Revenue Agency website, or from your local Tax Service Office. Best strategy to be granted relief? The best applications are brief and to the point. Rambling narratives with irrelevant detail that does not pertain to the cause of penalty and interest charges or to the applicable legislation, may reduce the likelihood of being granted relief. Applications that clearly do not fit within the categories for relief or the decision-making criteria are unlikely to result in relief being granted. If you're carrying a tax liability, consider whether or not your circumstances fit with the Taxpayer Relief Provisions. If you're unsure, speak with a licensed accounting practitioner who can give you some guidance. It may be worth looking into. Frank Flynn operates Taxpayer Relief Letters, a niche consultancy specializing in the writing of narrative content for Canadian taxpayers who are applying for relief from penalties and interest on tax liabilities. He also provides consulting services to people and companies who are under collection action by C.R.A. Frank Flynn has published plays, essays, and letters internationally and holds a joint major Bachelors Degree in English Literature and Cultural Studies. He is currently completing a Masters Degree in Creative Writing. His website can be found at www.taxpayerreliefletters.ca

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