While most taxpayers pay their annual income tax bill in full and by the tax payment deadline of April 30, there are many circumstances that could result in an individual’s being unable to meet their tax payment obligations in full or on time. Individuals who earn income from employment pay their taxes through deductions from their paycheques, but can still be faced with a tax balance owing when the annual return is filed. Newly retired Canadians who are receiving income from a variety of sources may not realize that sufficient tax is not being withheld from all of those sources to cover the tax bill for the year. And, in a time when many Canadians and their families are living paycheque to paycheque, most taxpayers are unlikely to have additional funds readily available to pay a large, unexpected tax bill.
While falling behind on any financial obligation isn’t good, tax debt is a particularly bad kind of debt to have, for a couple of reasons. First, interest is charged by the Canada Revenue Agency on all outstanding tax amounts owed. Interest rates are already at their highest level in more than 20 years – and the CRA charges interest at higher than market rates. By law, the interest rate levied by the CRA is two percentage points higher than commercial interest rates. The CRA’s “prescribed” interest rate – the one charged on all tax amounts owed – is currently (from October 1 to December 31, 2023) set at 9.0%. Beginning on January 1, 2024 and until March 31, 2024, that rate will increase to 10.0%. Second, all interest amounts charged by the CRA are compounded daily, meaning that on each successive day, interest is charged on interest amounts which were levied the day before. It’s not at all hard to see how, where interest is charged at 10% and compounded daily, total interest charges could accumulate very, very quickly.
Where a taxpayer owes money to the CRA and hasn’t the funds to pay that amount in full, there are a couple of options. The first is to reach out to the CRA to set up a payment arrangement. Like all creditors, the CRA prefers to be paid on time and in full. Especially in difficult economic times, that’s not always possible and the CRA is generally willing to consider an arrangement in which the tax debt is repaid over time.
There are two avenues available to taxpayers who want to propose a payment arrangement with the CRA. The first is a call to the Agency’s automated TeleArrangement service at 1-866-256-1147. When making such a call, it is necessary for the taxpayer to provide their social insurance number, date of birth, and the amount entered on line 15000 of the last tax return for which the taxpayer received a Notice of Assessment. For taxpayers who are up to date on their tax filings, that will be the Notice of Assessment for the return for the 2022 tax year. The TeleArrangement Service is available Monday to Friday, from 7 a.m. to 10 p.m., Eastern time.
Taxpayers who would rather speak directly to a CRA employee can call the Agency’s debt management call centre at 1-888-863-8657 Monday to Friday between 7 a.m. and 8 p.m. Eastern time, or can complete an online form (available at https://apps.cra-arc.gc.ca/ebci/iesl/showClickToTalkForm.action) requesting a callback from a CRA agent.
Where tax amounts are owed, it’s necessary to come to some arrangement with the CRA to eliminate that debt, as there is no ability to have tax amounts owed forgiven. That’s not the case, however, with respect to interest amounts which have accrued on the tax debt. In some circumstances, the CRA is prepared to waive such interest charges, along with any penalty amounts that have been assessed. It does so under the Taxpayer Relief Program.
Interest and penalty relief under the Taxpayer Relief Program is often provided to taxpayers who have been unable to meet their tax payment obligations as the result of natural disasters or other circumstances outside of their control. However, such relief is also available to taxpayers who are unable to meet such obligations owing to financial hardship. In particular, the CRA website indicates that it would consider providing interest relief where financial hardship and an inability to pay results from loss of work, or paying the interest would make it difficult to provide basic necessities such as food, medical help, transportation, or shelter.
In order to receive relief from interest charges, a taxpayer must provide the CRA with detailed information on their current financial situation. That financial situation is outlined on a prescribed CRA form, which is available at Form RC376, Taxpayer Relief Request – Statement of Income and Expenses and Assets and Liabilities for Individuals. In addition to the information submitted on that form, the taxpayer must also provide supporting documentation, such as current mortgage statement(s), property assessment(s), rental agreement(s), loans and recurring bills, bank and credit card statements for the most recent three months, and current investment statements.
The CRA will review the information submitted and make a determination of whether to cancel interest amounts owed, in whole or in part, in order to allow the taxpayer to pay off their tax debt. The CRA’s goal is to make a decision on straightforward applications made under the Taxpayer Relief Program within six months (180 days) after the application is received. However, not surprisingly, the Agency is currently receiving a higher than usual number of applications, meaning that the timeline for making decisions on those applications is now closer to eight months (or longer, for complex applications).
In considering whether to grant an application for interest and penalty relief under the Program, the Agency will consider a number of factors, including the taxpayer’s tax return filing and payment history, whether the taxpayer knowingly let a balance owing exist, which resulted in additional interest, whether reasonable care was taken in the management of the taxpayer’s tax affairs, and finally, whether the taxpayer acted quickly to correct any delay or omission.
Where the taxpayer’s request is denied, they can make on online request to have the decision reviewed. If that decision is also negative, the only recourse is to ask a judge to review the CRA’s decision. In the great majority of cases, however, the cost of taking that step is likely to be greater than the amount of interest and penalties at issue.
In all cases, the best course of action for the taxpayer is to be proactive – to contact the CRA as soon as the taxpayer is aware that full payment of taxes owed will not be possible, to set up a payment arrangement, and to make an application under the Taxpayer Relief Program for waiver of any interest or penalty charges. Taking the initiative and moving quickly to resolve the problem will both minimize the amount of interest which will accrue on unpaid taxes and will count in the taxpayer’s favour when the CRA considers whether to allow an application for waiver of those interest charges.
Detailed information on the Taxpayer Forgiveness Program is available on the CRA website at https://www.canada.ca/en/revenue-agency/services/about-canada-revenue-agency-cra/complaints-disputes/taxpayer-relief-provisions.html.
The information presented is only of a general nature, may omit many details and special rules, is current only as of its published date, and accordingly cannot be regarded as legal or tax advice. Please contact our office for more information on this subject and how it pertains to your specific tax or financial situation.
