Understanding financial hardship for taxpayer relief
Guest post by Frank Flynn
In my last post on Retire Happy, I shared how to apply for tax relief and gave a broad outline of the three categories for applying to the CRA for relief from penalty and interest on tax liabilities. For those that missed the first blog, the three categories are:
- Financial Hardship,
- Extraordinary Circumstances and
- Actions of the CRA.
This post will more clearly define “Financial Hardship”. Before an application for relief from penalty and or interest can be brought, there are foundational requirements that must be attended to. First, all tax returns must be filed up to date and a payment arrangement must be in place to reduce or eliminate the outstanding balance. Canada Revenue Agency will not review applications until such time as a payment arrangement has been made with a collections officer and all tax returns have been filed.
Relief due to financial hardship will be considered when collection of an account has been suspended because of a taxpayer’s inability to pay and when substantial interest has or will accumulate. Relief in the form of a waiver of currently accruing interest may also be granted when a taxpayer’s demonstrated ability to pay requires an extended payment arrangement. Where waiver of ongoing interest is granted, relief would be extended from the point at which a payment arrangement begins, as long as the agreed upon payments are made on time and in compliance with the Act. Financial hardship also includes scenarios when payment of the accumulated interest would cause prolonged inability to meet basic necessities such as food, medical help, transportation or shelter.
This category has limitations. Consideration for relief of penalty amounts is not generally given unless an extraordinary circumstance has prevented or limited the taxpayer’s ability to file on time.
It’s important to understand the Agency’s expectations when applying for relief under Financial Hardship. The legislation clearly indicates that the taxpayer demonstrate their financial circumstances. This means applicants must provide an Income, Expense, Asset, and Liability statement detailing their financial status. Full financial disclosure is expected. Generally speaking, in advance of granting relief the Agency expects taxpayers to borrow to the maximum of their ability to meet a tax obligation. Similarly, taxpayers with assets that could be liquidated to pay a tax debt are expected to do so. Does this mean you need to sell your furniture to pay your tax debt? No of course not. Does it mean the Agency expects you to sell your high-end fully decked out fishing boat? Yes probably. If you’re hanging on to savings or recreational assets worth money, submitting a financial hardship application is unlikely to be successful.
My next post will more closely define the Extraordinary Circumstances category for relief.
Frank Flynn is a former Canada Revenue Agency Collections Enforcement Officer now operating Taxpayer Relief Letters, a niche consultancy specializing in writing taxpayer relief requests. His website can be found at www.taxpayerreliefletters.ca