Saved from CRA interest and penalties
Canada’s income tax laws and regulations are long, convoluted, and complex (even judged say this). Although things aren’t as bad as down south in the USA, Canadian taxpayers are expected to understand and know how to apply often ambiguous and convoluted rules that span over 3000 pages. As if that isn’t enough, the Canadian tax system is “self-assessing” and “self-reporting”. This means that every Canadian is expected to know what they have to pay tax on, when they have to pay it, and how much they have to pay (including what forms to fill out and what limitations and exceptions apply). If you want to give it a try, there are guides.
There is no room for error as every person is assumed to know all of the law, including the thousands of court decisions that modify or interpret law, such that “ignorance of the law” is not an excuse. The Canada Revenue Agency does a bit to de-mystify tax law by providing administrative guidance and interpretations on a small fraction (not all) of tax law. However, even if you stick strictly to what the CRA has written or a CRA agent has told you, you are not protected. Government officials can’t change the law based on their interpretation or publications, meaning that if the CRA is wrong so are you. Bring wrong when it comes to taxes is not cheap. Not only will you have to pay the difference in tax owing, you will also have to pay interest on that difference all the way back to the date the mistake was made (which can be decades) and you may be subject to one of the many dozens of penalties that apply (the most common two are failure to file penalties and gross negligence penalties).
Even if the law was simple, with over 26 million people filing taxes (and many more not knowing they have to), mistakes happen. Government understands that people can make mistakes and that the government can make mistakes. With this in mind, they provide a few measures to reduce the financial pain of making tax mistakes. One mechanism of providing relief is the Minister’s discretion to waive or cancel interest and penalties. In some cases, where a taxpayer meets the preconditions and puts forward a well-argued and supported case, the CRA will remove interest and penalties. This is not a cure-all. The Minister can only go back 10 years, so the longer you wait the fewer years can be eligible.
The circumstances where interest and penalties can be cancelled or waived include when the CRA makes, if the taxpayer or a relative suffers serious illness or dies, or where the taxpayer is under financial distress. But, as with anything in tax, even this is not simple and often requires professional help and knowledge of case law that supports a person’s specific circumstances.
NOTE: Faris CPA has prepared and filed many successful applications for cancellation or waiver of interest and penalties. Articles are for general information only and do not constitute tax advice nor can they be relied upon.