Tsunamis in Japan. Tornados across the U.S. Flooding on the prairies.
Natural disasters wreak havoc wherever they hit, uprooting whatever and whoever stands in their way. Beyond the physical devastation, they pose both immediate and lingering threats to life, limb and livelihood.
Fortunately on the tax front, there is both recognition and relief for those struck by such events.
When can you seek relief?
Taxpayer relief is available in a variety of circumstances, including a serious sickness or death in the family, a postal service disruption, an error by the Canada Revenue Agency (CRA) or the occurrence of a natural disaster.
In the case of natural disasters, CRA will generally issue a press release to proactively advise the public of the potential availability of tax relief. Two such notices were issued on April 28, 2011, just prior to the May 2, 2011 individual filing and tax payment deadline. One of the notices referenced domestic spring flooding and the other adverted to the earthquake, tsunami and nuclear crisis in Japan.
What relief is available?
Taxpayer relief is a discretionary power of the Minister of National Revenue, exercised through CRA. Where taxpayers are unable to meet their tax obligations due to circumstances beyond their control, relief may be granted in the form of:
- Cancellation or waiver of penalties and/or interest;
- Acceptance of certain late-filed, amended, or revoked elections; and/or
- Issuance of income tax refunds or reductions to amount payable beyond the normal three-year period
In the face of a natural disaster, particularly one occurring in the early months of the year, the most obvious immediate impact will be on timely filing of a return and payment of any taxes due. Absent the relief provisions, a taxpayer could face costly penalties and interest, and lose out on potentially beneficial tax elections. For reference, the minimum late-filing penalty is 5% of the taxes owing, and compound daily interest begins being charged on outstanding taxes on May 3, 2011, currently at a rate of 5% per annum.
In extraordinary circumstances, CRA will extend the filing deadline rather than resort to the taxpayer relief provisions. As a recent example, the deadline was extended to June 1, 2009 (with respect to the 2008 taxation year) for all Manitoba residents living in designated flood-ravaged areas.
How does one apply?
A taxpayer should submit a relief request in writing to the Intake Centre (there are five of them) responsible for the province of residence. CRA recommends the use of Form RC4288, Request for Taxpayer Relief, which includes an explanation of the procedure, glossary of terms, addresses of the Intake Centres and other relevant guidance that could assist in the timely processing of the application.
While the suggested form is not mandatory, be aware that the application must be reviewed by an assigned officer who is responsible for assuring that all information and documentation is complete. The use of this form may thus streamline the process, and lead to an early response.
Finally, bear in mind that the relief provisions are indeed discretionary and that each case is reviewed on the merits of its facts. Accordingly, a taxpayer should not merely rely on the occasioning of the disaster as a guarantee that relief will be granted. Showing a clear connection between the events and the inability to fulfill the tax obligations – including the taxpayer’s diligence in attempting to do so – will contribute to the chances of reaching a satisfactory resolution.