Can I Ask the CRA to Cancel Penalties and Interest? Yes, Under Taxpayer Relief, Within Ten Years, for Reasons the CRA Recognizes

The CRA cannot cancel tax, but it can cancel penalties and interest, and it does so under its taxpayer relief provisions (subsection 220(3.1) of the Income Tax Act) for reasons it has published: extraordinary circumstances (illness, death in the family, disaster, civil disturbance), actions of the CRA (processing delays, errors in published information, incorrect advice), inability to pay or financial hardship, and other circumstances the CRA considers appropriate. The request is made on Form RC4288 (or by letter) within ten calendar years after the end of the tax year, with the facts and documents. The CRA's decision is discretionary; a denial can be reviewed by a second CRA officer and then by the Federal Court on judicial review. For cross-border taxpayers, the common requests are late-filing penalties on a departure or arrival year, T1135 penalties, and interest that accrued while a US-side matter was being resolved.

Key takeaways

• What can be cancelled: late-filing penalties, failure-to-file penalties on information returns (T1135, T1134, NR4), instalment interest, arrears interest, and gross negligence penalties in limited cases. Not the tax itself.
• The grounds: extraordinary circumstances beyond the taxpayer's control; CRA actions (delays, errors); inability to pay or financial hardship; and other circumstances where relief is appropriate (the CRA's own guidance lists these and states the list is not exhaustive).
• The limit: ten calendar years after the tax year in question (for a 2016 tax year, a request by December 31, 2026).
• The request: Form RC4288, or a letter, with the tax years, the penalties and interest, the reasons, and supporting documents (medical records, death certificates, correspondence with the CRA, financial statements for hardship).
• The decision: discretionary; the first-level decision can be reviewed by a different CRA officer on request (a second-level review); the second-level decision can be challenged by judicial review in the Federal Court on grounds of unreasonableness, not on the merits.
• What the CRA rarely accepts: not knowing the rules; reliance on a preparer (the CRA's position is that the taxpayer is responsible for the preparer); inconvenience.

The grounds in detail

Extraordinary circumstances. Serious illness or accident of the taxpayer or an immediate family member; death of an immediate family member; natural or human-made disaster (flood, fire); civil disturbance or disruption in services (postal strike, CRA system outage). The circumstance must have prevented compliance; a document (medical note, death certificate, news report) supports it.

CRA actions. Processing delays that caused interest to accumulate; errors in CRA publications or in advice the taxpayer received from the CRA (documented; a note of a phone call with the agent's name and date); delays in providing information the taxpayer needed; incorrect or untimely assessments. The CRA relieves interest for its own delays with some regularity.

Inability to pay. Where paying the interest and penalties would cause financial hardship (inability to meet basic living expenses), documented with an income and expense statement and assets; the CRA may cancel interest in whole or part, sometimes on condition of a payment arrangement for the tax.

Other circumstances. The CRA's guidance (Information Circular IC07-1R1) states that relief may be granted in other circumstances where it is appropriate; taxpayers have obtained relief for first-time failures with a credible explanation, for penalties disproportionate to the omission, and for situations where the taxpayer acted quickly to correct an error.

What the CRA does not accept

Ignorance of the law (a taxpayer who did not know the T1135 existed); reliance on an accountant (the CRA holds that the taxpayer is responsible for their preparer's errors, though a preparer's documented misconduct is different); a taxpayer's busy schedule or travel; the size of the penalty alone. These arguments are made and lose. The framing that works ties the failure to a circumstance the CRA has listed, or to the CRA's own conduct, or to hardship.

Cross-border framings

Departure year. A Canadian who moved to the US and filed the departure return late because the US preparer did not know one was required, or because the departure date was uncertain while the family's ties were unwinding: the late-filing penalty (5% plus 1% a month) on any balance owing is the target. The framing: the complexity of the cross-border move, the taxpayer's prompt action on learning, and any CRA delay in processing the departure return. Weak on its own; stronger with a documented circumstance.

Arrival year. An American who arrived in Canada, filed late because the residency start date was misunderstood: similar.

T1135. A returning Canadian who kept US accounts and filed the T1135 late: the $2,500-a-year penalty. The VDP before assessment is the better route; after assessment, taxpayer relief with a first-time-failure framing and prompt correction.

Interest during a US matter. A Canadian resident whose Canadian tax on US-source income could not be finalized until the IRS resolved a matter (a FIRPTA refund, a corrected 1042-S), with interest accruing on the Canadian balance: the framing is that the delay was outside the taxpayer's control and attributable to a foreign agency's process; the CRA sometimes relieves interest for the period.

NR4 and Section 216. A non-resident landlord's agent who failed to withhold or file: the agent's penalties; relief for a first failure with prompt correction.

The process

File Form RC4288 (or a letter with the same content) to the tax centre indicated for the taxpayer's province or, for non-residents, the applicable centre. State the tax years, identify the penalties and interest (with the notice of assessment amounts), explain the circumstances with dates, and attach the documents. The CRA acknowledges and, in months, decides. If denied, request a second-level review in writing, addressing the reasons given. If denied again, an application for judicial review to the Federal Court within 30 days, on the ground that the decision was unreasonable (the court does not substitute its own decision; it sends an unreasonable one back).

Worked example

A Calgary couple moved to Denver in June 2023. Their US preparer did not know Canada required a departure return; they learned in 2025 and filed the 2023 T1s in August 2025 with the departure tax ($38,000) and were assessed a late-filing penalty of about $6,500 and interest of about $4,000.

• Grounds. No extraordinary circumstance; no CRA action; no hardship. The framing is "other circumstances": the cross-border complexity, the preparer's omission (weak), the couple's prompt filing on discovery, and a first failure in thirty years of Canadian filing.
• Request. RC4288 with the assessments, the timeline, the preparer's engagement letter showing the scope, and the couple's clean history.
• Expected outcome. Partial relief is plausible (interest for the period after they engaged a cross-border firm; the penalty less likely); a second-level review if denied.
• Better path, in hindsight. The 2023 departure return filed under the VDP before the CRA assessed: full penalty relief and partial interest relief, without a discretionary request.

Official sources

The CRA states that for penalties it "will consider a request only if it relates to a tax year or fiscal period ending in any of the 10 calendar years before the year in which you make a request," and the same ten-year window applies to interest; the request is made on Form RC4288 under the taxpayer relief provisions (Information Circular IC07-1R1). — Canada Revenue Agency, Cancel or waive penalties and interest, https://www.canada.ca/en/revenue-agency/services/about-canada-revenue-agency-cra/complaints-disputes/cancel-waive-penalties-interest.html

Effective October 1, 2025, the CRA's Voluntary Disclosures Program grants an "unprompted" application general relief — "75% relief of the applicable interest" and "100% relief of the applicable penalties" — and a "prompted" application partial relief — "25% relief of the applicable interest" and "up to 100% relief of the applicable penalties"; in both cases the tax owing must be paid. — Canada Revenue Agency, Voluntary Disclosures Program, https://www.canada.ca/en/revenue-agency/programs/about-canada-revenue-agency-cra/compliance/voluntary-disclosures-program/changes-vdp.html

Practitioner note

Taxpayer relief is discretionary and the CRA's list of acceptable reasons is short, so the request has to land on the list. 'I didn't know' does not; illness, CRA delay, hardship, and a documented first failure with prompt correction can. The better tool is the VDP before the assessment exists; relief is what we use when the assessment already does.

See also: For the full picture of what each agency charges, see late-filing penalties on both sides of the border, and browse every cross-border tax topic guide, organized by situation.

Next step

Fairlight prepares the taxpayer relief request on Form RC4288 with the supporting documents, the second-level review if denied, and the VDP where the penalty has not yet been assessed. See cross-border pricing or book a call.