COVID-19 and CRA’s Taxpayer Relief Provisions
February 2022 update: The tax relief provisions described in this article only apply to taxable income for the 2020 taxation year. Eligible taxpayers who filed their 2020 tax return before the applicable deadlines will not pay interest or any amount owing from the 2020 tax year until after April 30, 2022.
As part of its COVID-19 Economic Response Plan, the Government has taken a number of steps to alleviate hardships faced by taxpayers. As discussed in our previous blog posts and newsletters, these measures include filing deadline extensions and payment deferrals to help individuals and businesses coping with financial difficulties, mandatory business closures and self-isolation.
CRA has invited taxpayers who are unable to file a return or make a payment because of COVID-19 to request relief under the Taxpayer Relief Program. To be precise, the CRA has indicated that meeting an extended deadline announced because of COVID-19 is sufficient to ensure no interest or penalties will be charged. Taxpayers who are unable to file a return or make a payment by the tax-filing and payment deadlines because of COVID-19 can request the cancellation of penalties and interest charged to their account. Once CRA business operations resume, the Taxpayer Relief Program will review requests related to COVID-19 on a priority basis. As many taxpayers may be facing penalties and interest as a result of the pandemic, this blog post provides an overview of the taxpayer relief provisions.
As part of government actions taken in dealing with the effects of the COVID-19 pandemic, tax filing and payment deadlines have been extended.
Filing Deadlines and Payment Extensions
Specifically excluded from the June 1, 2020 extension are filing deadlines for Scientific Research and Experimental Development (SR&ED) Expenditures Claims (Form T661) and any prescribed forms or information relating to claims for investment tax credits under the Income Tax Act.
Extended to December 31, 2020 are filing deadlines that would otherwise fall between March 18, 2020 and December 31, 2020 for Registered Charity Information Returns (Form T3010).
In addition, no extensions have been provided for payments related to GST/HST, source withholdings or any other payments not specifically related to income tax.
For returns filed and payments made by the extended deadlines established by the Government, which vary according to the tax in question and category of taxpayer, the CRA announced it will not charge penalties and interest. However, CRA will not automatically waive penalties and interest in relation to tax balances that are outside of the COVID-19 relief periods.
This means that interest will continue to accrue on tax balances that pre-existed the COVID-19 outbreak, and those that remain unpaid after the expiration of the COVID-19 relief periods. The CRA has indicated it will consider requests from taxpayers to cancel or waive penalties and interest on tax balances not covered by the COVID-19 relief periods on a case-by-case basis, and that such requests will be given priority once its business operations resume.
CRA’s Taxpayer Relief Provision
The CRA administers legislation that gives the Minister of National Revenue discretion to:
- Cancel or waive penalties or interest;
- Accept certain late, amended, or revoked income tax elections;
- Issue a refund or make an adjustment to refund; or
- Reduce tax payable beyond the normal three-year period for an individual, a graduated rate estate, and for certain tax years, a testamentary trust
Specifically, subsection 220(3.1) of the Income Tax Act and section 281.1 of the Excise Tax Act grant the CRA discretion to cancel or waive all or any portion of any penalty or interest that would otherwise be payable by a taxpayer or a partnership for any tax year (or fiscal period, for a partnership) that ended within 10 years before the calendar year in which the request is made. For interest, the 10-year limit refers to years during which the interest accrued, not the year for which the tax was originally payable.
The CRA guidelines establish that relief from penalties and interest may be granted where the following types of situations exist and justify a taxpayer’s inability to satisfy a tax obligation or requirement:
- Extraordinary circumstances;
- Inability to pay and financial hardship; and
- CRA delay
- Other circumstances
1. Extraordinary circumstances
The guidelines above specify waiver or cancellation may be warranted where the penalty or interest resulted from extraordinary circumstances beyond a taxpayer’s control, such as natural or human-made disasters, civil disturbances or disruptions in services, serious illness or accidents, or serious emotional or mental distress.
Historically speaking, the CRA considered the 2013 flooding in Fort McMurray and the 2018 wildfires in B.C. and Ontario to be “natural or human-made disasters.” Health issues such as the 2003 SARS epidemic and 2000 E. coli water contamination in Ontario were also labelled extraordinary circumstances, warranting relief of penalties and interest for those affected.
The automatic granting of relief for penalties and interest otherwise arising within the COVID-19 relief periods suggests the COVID-19 pandemic would also constitute an “extraordinary circumstance.” However, what remains to be seen is to what extent the CRA will view the pandemic as preventing taxpayers from complying with the Income Tax Act or the Excise Tax Act for periods outside the COVID-19 relief periods.
2.Inability to pay and financial hardship
CRA guidelines also provide for relief from penalties and interest where there is a confirmed inability to pay all amounts owing. For example, relief may be appropriate in situations where:
- The demonstrated inability to pay requires an extended payment arrangement;
- Payment of the accumulated interest would cause a prolonged inability to provide basic necessities (financial hardship) such as food, medical care, transportation, or accommodation; or
- A taxpayer cannot make a reasonable payment arrangement because the interest charges would absorb a significant portion of the payments.
The CRA will not usually consider cancelling interest or penalties based on inability to pay or financial hardship unless extraordinary circumstances prevented compliance. The guidelines acknowledge, however, there could be exceptional situations for which penalties are cancelled; for example, when a business is experiencing extreme financial difficulty and enforcement of such penalties would jeopardize the continuity of its operations, the jobs of the employees, and the welfare of the community as a whole.
CRA guidelines also provide for the cancellation or waiver of penalties and interest due to the actions of the CRA, which could include the following:
- Processing delays or errors;
- Mistakes in publicly available CRA material;
- Incorrect CRA advice;
- CRA delays in providing information necessary for the taxpayer to make a required payment; or
- Undue delays in resolving an objection or an appeal or in completing an audit
As part of its response to COVID-19, the CRA announced any objections not related to Canadians’ entitlement to benefits will be temporarily held in abeyance, and audit activities – such as launching new audits, sending requests for information in relation to existing audits and finalizing audits – have been suspended.
It could be expected that interest accruing in a period during which an audit or appeal was unilaterally suspended by the CRA due to COVID-19 would be waived. Taxpayers with tax years under audit, an objection or appeal approaching the expiration of the 10-year limit would benefit from filing a protective application for relief prior to that deadline. The 10-year limit is statutory and is not affected by the CRA holding audit and objection processing activities in abeyance due to the COVID-19 pandemic.
In pre-emptively waiving penalties and interest for tax balances falling within the COVID-19 relief periods, the CRA has acknowledged the COVID-19 crisis is an “extraordinary circumstance.” Although the CRA has stated it will only consider waiving penalties and interest on a case-by-case basis for tax balances outside of the COVID-19 relief periods, it is reasonable to expect the impacts of the COVID-19 crisis will be recognized as a basis for relief where such impacts persist. Taxpayers facing compliance difficulties and hardship due to the COVID-19 crisis should consider requesting relief for periods outside the COVID-19 relief periods.
Ask us for help
Kalfa law can assist you in the course of applying for taxpayer relief. If you would like to discuss any of these matters with a member of our tax law team, we welcome you to contact us at (416) 631-7227 to arrange for a phone consultation. We are operating throughout the pandemic and can help you meet statutory filing deadlines. Consult a tax lawyer at Kalfa Law today to find out how you can best manage your tax debt, especially one that has ballooned out of your control.
For more information on the various government assistance programs during COVID-19, click here.
-Baber Rahim, Tax Law Clerk & JD Candidate
Baber works in our tax department assisting our tax lawyers in preparing Voluntary Disclosure Applications, Taxpayer Relief Applications, and with Appeals, Audits and Objections within the CRA. Baber’s passion for tax law was sparked by an advanced tax law professor at the Goodman School of Business at Brock University, where he received his Bachelor of Accounting (Honours) degree. He subsequently worked for the Canada Revenue Agency (CRA) for several years. After working in the federal public service for a number of years, Baber decided to pursue a career in law and is currently working towards completing his law degree at Western University, while working for Kalfa Law.
© Kalfa Law, 2020
The above provides information of a general nature only. This does not constitute legal advice. All transactions or circumstances vary, and specified legal advice is required to meet your particular needs. If you have a legal question you should consult with a lawyer.