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New avenues for relief from CRA penalties and interest: Taxpayer relief during the COVID-19 pandemic

September 10, 2020

By Selena Ing, Associate, and Milosz Zak, Associate, Farber Tax Law

Since the start of the pandemic in mid-March of 2020, Canadians have benefited from a series of Federal Government programs to lessen the impact of the economic slowdown caused by COVID-19. Whether it is the GST/HST credit, an increase to the Canada Child Tax Benefit, the 10% wage subsidy, CERB for Canadians out of work, CEWS for employers, CEBA interest-free loans, CECRA commercial rent assistance, filing deferrals, and many others,1 it is easy to forget that the Canada Revenue Agency’s (the “CRA”) existing taxpayer relief program2 is available to Canadians who, notwithstanding the Federal Government’s COVID-19 efforts, have nevertheless failed to meet their tax obligations.

In 1991, the Minister of National Revenue (the “Minister”) released the “Fairness Package”3 in the form of information circulars, authorized under subsections 220(3.1), (3.2), (3.7), 152(4.2) and (4.3), paragraph 164(1.5)(a), and sections 166.1 and 166.2 of the Income Tax Act,4 (the “ITA”) which allowed taxpayers to seek reprieve in instances where they failed to comply with their tax obligations due to extraordinary circumstances outside of their control. Currently, per the most recent, information circular 07-1R1 “Taxpayer Relief Provisions”,5 (the “Circular”) the Minister has the discretion to:

  1. Cancel or waive penalties or interest;
  2. Accept certain late, amended, or revoked income tax elections; and
  3. 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, in some cases, a testamentary trust.

Because of the COVID-19 pandemic, the CRA has invited taxpayers to submit tax relief applications, and will review them on a priority basis.6 As such, it is important to know that notwithstanding this invitation, the CRA will still operate within the Circular, and will expect taxpayers establish how their situation meets the enumerated grounds, and establish the requisite nexus between COVID-19 and their non-compliance with the ITA. As a result, taxpayers who intend to apply for relief on account of COVID-19 should become intimately familiar with the Circular.

Cancelling or Waiving Penalties or Interest

Subsection 220(3.1) of the ITA and subsections 281.1(1) and (2) of the Excise Tax Act7 (the “ETA”) permit the Minister to waive or cancel all or any part of a penalty or interest otherwise payable under the ITA or ETA by a taxpayer. However, a taxpayer relief application is unable to provide relief for the principle tax assessment. 

Nevertheless, penalties and continuously accruing interest can quickly become a substantial portion of a taxpayer’s overall tax debt. For example, taxpayers may incur late filing penalties as a result of late filed tax returns, or if taxpayers are arbitrarily assessed by the CRA before their returns are filed. Penalties are applied at a rate of 5% of the balance owing, plus 1% of the balance owing for each month to a maximum of 12 months, or 17% overall.8 Should returns not be filed on time in multiple years, repeated late filing penalties are applied at a rate of 10% of the balance owing, plus 2% of the balance owing for each month, to a maximum of 20 months, or 50% overall.9 Further complicating the matter, interest begins accruing on the outstanding balances at a prescribed rate compounded daily from the date in which the tax amount ought to be owed, because a tax liability comes about by “operation of the law”, not by virtue of an assessment. As a result, substantial interest or penalties may be a large part of a taxpayer’s assessment.

In the Circulars10 and the corresponding GST/HST memorandum 16.3 “Cancellation or Waiver of Penalties and/or Interest” (the “GST/HST Memorandum”),11 the CRA has issued guidelines to taxpayers in respect to what constitutes grounds for relief, before an application to cancel or waive penalties and interest is submitted. Where possible, taxpayers should use the CRA’s prescribed RC428812 form in conjunction with a letter thoroughly explaining the circumstances beyond their control that caused the taxpayer to fail to meet their tax obligations, how and why those circumstances meet the enumerated circumstances for relief, and copies of supporting documentation as corroborating evidence. Therefore, it is critical that taxpayers document their situations thoroughly and accurately to demonstrate the nexus between their inability to fulfill their tax obligations and the effects of the pandemic. Successful applicants should include factors that will assist the Minister in determining whether the relief request is reasonable, such as those listed in the Circular:

  1. whether the taxpayer has a history of compliance with tax obligations;
  2. whether the taxpayer has knowingly allowed a balance to exist on which arrears interest has accrued;
  3. whether the taxpayer has exercised a reasonable amount of care and has not been negligent or careless in conducting their affairs under the self-assessment system; and
  4. whether the taxpayer has acted quickly to remedy any delay or omission.13

The far-reaching effects of the COVID-19 pandemic may fit many of the enumerated criteria recognized as eligible grounds for relief by the CRA. Paragraph 23 of the Circular states that the Minister may grant relief in situations where the taxpayer was unable to fulfill their tax obligations or requirements due to:

  1. extraordinary circumstances beyond their control;
  2. actions – or the lack of action – of the CRA; or
  3. inability to pay or financial situation.14

However, in addition to the items listed above, paragraph 24 of the Circular states that, “[t]he minister’s delegate may also grant relief even if a taxpayer’s circumstances do not fall within the situations…”,15 which allows taxpayers to file a taxpayer relief application for circumstances that do not fall squarely into one of the enumerated examples (i.e. extraordinary circumstances, actions of the CRA, or the inability to pay). In the case of COVID-19 relief requests, taxpayers may have been negatively affected in a number of ways. Nevertheless, in practice, paragraph 24 of the Circular is rarely exercised, which means taxpayer ought to see if their situation first meets the enumerated grounds in paragraph 24.

Extraordinary Circumstances

Pursuant to paragraph 25 of the Circular, the CRA has provided examples of circumstances that may qualify under “extraordinary circumstances” including but not limited to:

  1. natural or human-made disasters, such as flood or fire;
  2. civil disturbances or disruptions in services, such as a postal strike;
  3. serious illness or accident; or
  4. serious emotional or mental distress, such as death in the immediate family.

Arguably, the COVID-19 pandemic is akin to a natural disaster in that it, as a sudden, calamitous event, and the magnitude of which has been so catastrophic that it affected, disrupted, and destroyed the lives of individual applicants. Although the COVID-19 virus affects individuals differently, depending on the severity of the symptoms, it is unclear what constitutes a “serious” illness in the eyes of the CRA. Further, in many parts of Canada, the far-reaching lockdowns also resulted in a disruption of services, ranging from a reduction in transportation linkages to slow internet services due to increased usage in some areas. It is also conceivable that the effects of the lockdowns may have had an impact on the emotional and mental wellbeing of many Canadians, which could have prevented taxpayers from taking the necessary steps of fulfilling their tax obligations.16

Actions of the CRA

Paragraph 26 of the information circular provides for relief on account of action, or inaction, of the CRA itself. Pursuant to paragraph 26 of the Circular, the CRA has stated that penalties and interest may be waived as a result of actions of the CRA, such as:

  1. processing delays that result in the taxpayer not being informed, within a reasonable time, that an amount was owing;
  2. errors in material available to the public, which led taxpayers to file returns or make payments based on incorrect information;
  3. incorrect information provided to a taxpayer;
  4. errors in processing;
  5. delays in providing information, such as when a taxpayer could not make the appropriate instalment or arrears payments because the necessary information was not available; and
  6. undue delays in resolving an objection or an appeal, or in completing an audit17

With respect to COVID-19, there may have been significant CRA delay caused by the national shut down of services beginning in mid-March, as CRA officers were instructed to leave the office, and few adequately equipped and trained to securely work from home.18

Financial Hardship

Lastly, if the taxpayer can demonstrate an inability to pay or financial hardship, the Minister may waive or cancel all or part of the interest. For such relief applications, the CRA’s prescribed RC37619 form is required, along with supporting documentation. Penalty relief based on an inability to pay is not generally considered unless the taxpayer is able to demonstrate extraordinary circumstances prevented the taxpayer from fulfilling their tax obligations. Consequently, it is absolutely critical that taxpayers document their situations, compile lists of individuals willing to attest or provide statements as to the veracity of their situation, and draw a clear timeline and narrative as to the causes of their inability to fulfill their tax obligations. In the case of businesses experiencing financial difficulties related to COVID-19, if the taxpayer can demonstrate that the jobs of its employees and the welfare of the community is at risk if said penalties are enforced, penalty relief may be considered.20

Late, Amended, or Revoked Elections

In addition to the more conventional grounds for relief in paragraphs 25, 26, and 27, paragraph 45 of the Circular, in conjunction with subsection 220(3.2) of the ITA permit the Minister to give a taxpayer the benefit of certain elections, to amend them, or to altogether revoke them, despite the passing of prescribed due dates. However, a request to reorganize a taxpayer’s elections with the CRA must come within the 10-year time limit described in paragraph 13 of the Circular. The list of prescribed elections which fall under subsection 220(3.2) of the ITA is extensive. The process, however, is not without its costs, due to subsection 220(3.5) of the ITA which establishes a penalty of the lesser of $8,000 or $100 for each whole month from the election’s original due date to the date the relief application is made. Just as with relief in the normal course, the taxpayer must justify its election application for it to be accepted. Paragraph 56 of the Circular enumerates the circumstances where a late, amended or revoked election would be accepted.21

It must be emphasized that the CRA will not entertain requests which are tantamount to retroactive tax planning. The Minister’s “Fairness Package” was never meant to reduce tax owing, and therefore, the CRA will be investigate election applications to determine whether a taxpayer is trying to take advantage of changes in the law after the due date of the election — thereby engaging in retroactive tax planning, whether the taxpayer is unable to provide adequate records, or that the application stems from the taxpayer’s negligence or carelessness in complying with their tax obligations.22

Refunds or Reduction in Amounts Payable

It should be noted that only individuals (not corporations) and graduated-rate estates are eligible for refunds beyond the three-year statute-barred period. Ordinarily, subsection 164(1) of the ITA bars the Minister from refunding an overpayment of tax beyond three years, and no later than three years from the date of the original notice of assessment, and as long as the corresponding returns were filed no later than three years from the end of the tax year – the normal reassessment period.23 However, subsection 164(1.5)(a) of the ITA authorizes the minister to issue a refund to individuals or graduated-rate estates all or any part of an overpayment of tax for a taxation year, if those returns were filed more than three years after the end of the tax year; the standard 10-year limitation does apply.

Subsection 152(4.2) of the ITA allows the Minister to reassess a taxpayer beyond the normal three-year reassessment period based on fairness in instances where extraordinary circumstances have led to outstanding tax arrears. The courts have held that there is no right of appeal from a subsection 152(4.2) of the ITA reassessment.24 

The 10-Year Limitation Period for Relief

Paragraph 13 of the Circular is clear that a taxpayer must apply for relief, or file an outstanding income tax return, within 10 calendar years. The Minister does not have the authority to waive or cancel penalties, accept a late, amended or revoked income tax election, issue a refund, or make an adjustment beyond the normal three-year period.25 The 10-year period for which taxpayers can obtain interest relief stems from the Federal Court of Appeal’s 2011 decision in Bozzer v Her Majesty The Queen,26 wherein the Court interpreted subsection 220(3.1) as granting the Minister the statutory authority to cancel interest on Mr. Bozzer’s 1989 and 1990 tax debts, to the extent that it accrued during the ten taxation years preceding his application for relief.27 The CRA has since adopted this 10-year limitation period, and acknowledges it in its Circular.

Second Administrative Review

Where a taxpayer believes that the Minister improperly exercised its discretion when rendering an unfavourable decision for relief, a taxpayer may seek a second administrative review to be performed by the CRA.28 The second administrative review is intended to be independent of the original decision. Therefore, the CRA officer who oversaw the first administrative review will not be involved with the second administrative review. 

To make a second administrative review, taxpayers should send a letter to the CRA requesting for a second administrative review of the decision, along with the appropriately prepared RC4288 indicating the second-level review. The request for a second administrative review should detail the reasons why the taxpayers disagrees with the original decision. Moreover, in the second administrative review, the taxpayer can provide new documentation or additional representations for the CRA’s consideration, beyond the grounds already relied upon in the first-level review.

If the second administrative review still proves unsuccessful, taxpayers may apply for judicial review29 where a Federal Court judge will determine30 whether the exercise of the Minister’s discretion was reasonable.

Judicial Review

Judicial review is a further recourse that a taxpayer may pursue if they are dissatisfied with the result of the second-level review conducted by the CRA. A taxpayer may only apply to the Federal Court for judicial review if they feel that the Minister did not properly exercise its discretion after a second-level review of the taxpayer’s request for relief. Taxpayers interested in pursuing a judicial review should be cognizant that the Federal Court will not overturn or substitute a judgment in place of a decision made by the Minister. Rather, the Federal Court will likely refer the matter back to the Minister for reconsideration of the taxpayer relief application to rectify the errors set out by the Federal Court.

The Federal Court is able to grant two types of relief in accordance with subsection 18.1(3) of the Federal Courts Act:

Powers of Federal Court18.1(3) On an application for judicial review, the Federal Court may(a) order a federal board, commission or other tribunal to do any act or thing it has unlawfully failed or refused to do or has unreasonably delayed in doing; or(b) declare invalid or unlawful, or quash, set aside or set aside and refer back for determination in accordance with such directions as it considers to be appropriate, prohibit or restrain, a decision, order, act or proceeding of a federal board, commission or other tribunal.31

Paragraph 18.1(3)(b) of the Federal Courts Act is the most common form of relief granted by Federal Court. In the context of taxpayer relief applications, a successful judicial review decision by the Federal Court does not mean that the decision made by the Minister is overturned. Instead, the Federal Court will identify error(s) in the Minister’s decision-making process and outcome based on reasonableness. The Federal Court will then refer the matter back to Minister with direction to rectify the error(s) found. While the Minister will reconsider the relief request, it may still lead the Minister to the same decision and may not give a taxpayer their desired result. Presumably, after having consider the loss in Court, the CRA would made all conceivable effort to address the error(s) identified by the Court. Whether that will result in a more favourable outcome for the applicant depends on the given situation.

An important aspect to consider is that in order to apply for judicial review to the Federal Court, a taxpayer must make an application within 30 days of receiving the decision pursuant to subsection 18.1 of the Federal Courts Act. The application must also satisfy one of the enumerated grounds for review pursuant to subsection 18.1(4) of the Federal Courts Act:

The Federal Court may grant relief under subsection (3) if it is satisfied that the federal board, commission or other tribunal

  1. acted without jurisdiction, acted beyond its jurisdiction or refused to exercise its jurisdiction;
  2. failed to observe a principle of natural justice, procedural fairness or other procedure that it was required by law to observe;
  3. erred in law in making a decision or an order, whether or not the error appears on the face of the record;
  4. based its decision or order on an erroneous finding of fact that it made in a perverse or capricious manner or without regard for the material before it;
  5. acted, or failed to act, by reason of fraud or perjured evidence; or
  6. acted in any other way that was contrary to law.

The Federal Court will judicially review an application based on the standard of review of “reasonableness”. More than a decade after the landmark decision in Dunsmuir v New Brunswick,32 the Supreme Court of Canada (the “SCC”) revised its framework for determining the standard of review to be applied in administrative decisions. The recent SCC decision in Canada (Minister of Citizenship and Immigration) v Vavilov33 is intended to further clarify and simplify the standard of review for judicial review in comparison to its predecessor. 

The SCC provided insight on when and how the reasonableness analysis should be conducted. The new approach provides that there should be a presumption that the standard of review will be reasonableness, except where:

  1. a specific standard of review has been set out in the statute;
  2. a statutory right of appeal has been set out in the statute;
  3. constitutional questions;
  4. general questions of law of central importance to the legal system as a whole; or
  5. questions regarding the jurisdictional boundaries between administrative bodies.

While this list of exceptions is not exhaustive, the SCC indicated their reluctance to include further categories requiring correctness review. The Vavilov decision also clarified that the reasonableness review is concerned with not only the outcome of the administrative decision, but also the reasonableness of the decision-making process itself. In the context of taxpayer relief applications filed on account of circumstances arising out of the COVID-19 pandemic, the Vavilov decision means to direct CRA decision makers to further justify their exercise of delegated, Ministerial discretion to grant relief when their decisions will significantly impact the lives and well-being of the applicants.


The extraordinary nature, scale, scope and the effects of the COVID-19 pandemic fit the established, enumerated grounds for relief from CRA penalties and interest. However, the CRA will only grant relief if taxpayers are able to establish a nexus between the effects of the COVID-19 pandemic and their related non-compliance with their tax obligations. 

The established, successful method for relief applications, involves significant documentary substantiation, which many taxpayers may not have access to on account of lockdowns, death, or destruction or loss of relevant documentation. The CRA has made no indication it has relaxed its approach in the kinds of documentation which may be required to support a relief application.

Notwithstanding the CRA’s usual expectations for substantial documentation underlying a relief application, new developments in Canadian jurisprudence, such as those found in the Vavilov decision, signal to the CRA that its decision makers cannot adopt a cookie-cutter approach for COVID-19-related relief applications.

If CRA decision maker intend to deny relief, they must adequately justify their decision, and especially in circumstances where the given CRA decision maker’s exercise of discretion will have a potential significant, negative impact on the life of the applicant. With job losses, deaths, illness, and a general slowdown in the Canadian economy, any negative disposition of a taxpayer relief application may have significant, negative far-reaching consequences on individual taxpayers and the Canadian economic recovery.


[1] “Canada’s COVID-19 Economic Response Plan”, Government of Canada, <>.

[3] “Fairness Package”, News Release, Minister of National Revenue, Canada, May 24, 1991.

[4] Income Tax Act, RSC 1985, c 1 (5th Supp).

[6] “Collections, audit, objections and appeals”, CRA and COVID-19, CRA, <>.

[7] Excise Tax Act, RSC 1985, c E-15.

[12] “RC4288 Request for Taxpayer Relief – Cancel or Waive Penalties or Interest”, CRA, <>.

[13] “Taxpayer Relief Provisions”, CRA, paragraph 33 “Circumstances that may warrant relief from penalties and interest”, <>.

[14] “Taxpayer Relief Provisions”, CRA, paragraph 23 “Circumstances that may warrant relief from penalties and interest”, <>.

[16] “Taxpayer Relief Provisions”, CRA, paragraph 25 “Extraordinary Circumstances”, <>.

[17] “Taxpayer Relief Provisions”, CRA, paragraph 26 “Extraordinary Circumstances”, <>.

[18] “Taxpayer Relief Provisions”, CRA, paragraph 26 “Actions of the CRA”, <>.

[19] “RC376 Taxpayer Relief Request – Statement of Income and Expenses and Assets and Liabilities for Individuals”, CRA, <>.

[20] “Taxpayer Relief Provisions”, CRA, paragraphs 27 and 28 “Inability to pay or financial hardship”, <>.

[21] “Taxpayer Relief Provisions”, CRA, paragraphs 45 – 54 “Guidelines for accepting late, amended, or revoked elections”, <>.

[22] “Taxpayer Relief Provisions”, CRA, paragraph 57 “Denial of a late, amended, or revoked election”, <>.

[23] “Taxpayer Relief Provisions”, CRA, paragraph 66 “Refund entitlement”, <>.

[24] Mellish v The Queen, 2007 TCC 228, para 10, <>.

[25] “Taxpayer Relief Provisions”, CRA, paragraphs 12 – 14 “Limitation period on using ministerial discretion and the deadline to apply for relief, other than interest relief”, <>.

[26] Bozzer v Her Majesty The Queen, 2011 FCA 186 (CanLII), <>.

[27] Bozzer v Her Majesty The Queen, 2011 FCA 186 (CanLII), at para 59, <>.

[28] “Taxpayer Relief Provisions”, CRA, paragraph 103 “Redress – Second Administrative Review”, <>.

[29] “How to file an Application for Judicial Review”, Federal Court of Canada, <>.

[30] “Taxpayer Relief Provisions”, CRA, paragraph 105 “Redress – Judicial Review”, <>.

[31] Federal Courts Act, RSC, 1985, c F-7, subsection 18.1(3).

[32] Dunsmuir v New Brunswick, 2008 SCC 9 (CanLII), [2008] 1 SCR 190, <>.

[33] Canada (Minister of Citizenship and Immigration) v Vavilov, 2019 SCC 65, at paras 109, 131 (CanLII), <>.