How to Request a Waiver or Cancellation of Tax Penalties and Interest

When circumstances beyond a taxpayer’s control prevent them from meeting their tax obligations, it is possible to cancel or waive penalties and interest.

The Canada Revenue Agency (CRA) considers all requests for relief from penalties and interest, which can be made by a taxpayer or their authorized representative. While the CRA has the discretion to waive interest and penalties, it cannot waive the tax itself. Generally, if a tax return is filed late, income is not reported, or there is an outstanding balance, the CRA charges penalties and interest on the unpaid tax amount. Penalties start at 5% for unpaid taxes but can increase to 50% of the balance if income is understated or credits and deductions are overstated when filing a tax return.

Procedures for Interest and Penalties Waiver Request

First, the taxpayer has to provide a detailed, complete, and accurate description of their circumstances explaining why relief is being requested. The document must include the taxpayer’s social insurance number, business number, partnership number, or trust account number as relevant and the tax year/s for which the waiver is requested. The taxpayer will also need to explain how the circumstances occurred and prevented them from making a payment when due.

The taxpayer or authorized representative should also fill out Form RC4288 - Request for Taxpayer Relief – Cancel or Waive Penalties and Interest and submit it online.

To make the request stronger, the taxpayer can also attach Form RC376 - Taxpayer Relief Request - Statement of Income and Expenses and Assets and Liabilities.

Supporting Documents for Financial Disclosure

Following documents could be forwarded to support financial disclosure:

Rental agreement/Mortgage statement/credit card statement

Statements of earnings i.e. recent paystubs if employed - summary of Business income and expense

Recent statements of investment income – Dividend - Interest/Rental income/or any other income

Any expense summary i.e. Interest expense/operating expense etc.

Business – list of accounts receivable, accounts payable, details of creditors, any other

Business statements which can help to make the case stronger

Social/Personal Circumstances

Medical: Documents related to the medical condition of you or other family member/s due to which income is affected such as doctor's certificate indicating types of illness, length of treatment if required.

Natural disasters such as forest fires and floods which must be supported by insurance reports/statements.

With all of these, the taxpayer needs to be able to show the connection between the event and the inability to pay on time. Simply being sick is not enough; for example, you would need to show that you had a medical reason or a loss of job and were unable to pay during the time you were required to act. And if you were only sick for a short time, then the CRA might waive interest for only that short time.

The CRA may consider cancelling or waiving penalties and/or interest if doing so would be in the interest of fairness or if it would promote taxpayer compliance. It’s important to note that taxpayers must apply for the cancellation or waiver of penalties and/or interest, and the CRA will review each case on its own merits.