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

Written by Jim Yih

Jim Yih is a Fee Only Advisor, Best Selling Author, and Financial Speaker on wealth, retirement and personal finance. Currently, Jim specializes in putting Financial Education programs into the workplace. For more information you can follow him on Twitter @JimYih or visit his other websites JimYih.com and Clearpoint Benefit Solutions.

2 Responses to Understanding Financial Hardship for Taxpayer Relief

  1. Hi,

    I was surfing net for some finance articles when I got your site retirehappyblog.ca and found that it’s a good site with useful and informative articles.

    I am impressed with your site as it is helping people in taking their financial decision. So, I would like to send an article for a guest post in your site based on debt theme. My article will be unique and quality one article and also help your site to get more traffic. In return you will get a back link from a quality site.

    Please reply me as soon as possible whether I can be able to contribute my article here.
    Please let me know your thoughts. Waiting for your positive reply. Reach me at: myrina (dot) stein (dot) 888 [at] gmail (dot) com

    Best Regards,

    Myrina Stein

  2. I’m curious if you can tell me how long it usually takes to have your review heard?

    I submitted my appeal in June, 2012 and its almost April 2013 and they still have not reviewed it. My problem arose as a result of the IRS assigning me the same social security number as a woman in Ohio back in 1999. CRA repeatedly rejected my US documents as her name showed up on some of the pages of the Notice Of Assessment. When asked how to fix it, I was told that I would have to re-apply for US Citizenship which I refused because I’m a Canadian.

    Since 2006, my life has been turned upside down over this. They have garnisheed a significant portion of my salary since 2010, have left me unable to borrow money or buy a car. I have been left unable to help 2 of my adult children who have significant psychological and medical issues. My marriage collapsed a few years back with this chaos a direct cause. I have had to sell all of my possessions and only have left a 15 year old Honda which is on its last legs. And now….I’m about to lose the little property in Mexico that I bought knowing I would be strapped for cash in my old age. My life has been devastated by this and CRA seems to be in no hurry to help me. My next choice is bankruptcy or seeking refugee status in Mexico because my country has destroyed me mercilessly. I’m 55 and have no time to recover from this. I guess I’m going to cost my government a lot of money in my latter years as I won’t be able to look after myself.

Leave a reply