Claiming Financial Hardship in Tax Appeals: Does CRA Care? – A Complete Guide by a Montreal CPA Firm Near You

Introduction

Many taxpayers hope that financial hardship—job loss, illness, debt, divorce, or business failure—will influence CRA to reduce their tax balance or reverse a reassessment. Unfortunately, CRA’s rules do not always work the way taxpayers expect. Financial hardship can help in some tax processes but has no effect in others. Knowing when hardship matters—and when it does not—can save you years of penalties, interest, and stress. This guide clarifies how CRA treats financial hardship during objections, appeals, collections, and Taxpayer Relief applications.

Legal and Regulatory Framework

Financial hardship may be relevant under:

• Taxpayer Relief (Income Tax Act, s. 220(3.1))

• Payment arrangements with CRA Collections

• Hardship-based relief for interest and penalties
  Financial hardship is not considered during formal tax disputes such as:

• Notices of Objection

• Tax Court appeals
  These processes review tax correctness, not personal finances. CRA must follow legislation, not empathy, when deciding whether an assessment is correct.

Key Court Decisions

In Rennie v. Canada, the Federal Court held that CRA must consider hardship during collection negotiations. In Bozzer v. Canada, the Court of Appeal confirmed CRA may waive interest due to hardship under the 10-year relief rule. In McKeown v. Canada, Tax Court reiterated that hardship is not grounds to cancel tax during appeals. These decisions draw a clear line between tax correctness and penalty/interest fairness.

Where Financial Hardship DOES Matter

1. Taxpayer Relief Applications

CRA may waive or reduce penalties and interest for:

• Illness or medical crises

• Mental health issues

• Family tragedies

• Disaster, fire, theft

• Extreme financial hardship

• CRA processing delays
  Relief is not guaranteed, and strong documentation is required.

2. CRA Collection Negotiations

If you cannot pay your tax bill, CRA Collections considers hardship when approving:

• Payment plans

• Reduced monthly payments

• Temporary holds on collections

• Requests to lift wage garnishments

• Requests to lift bank freezes
  CRA must consider your ability to pay.

3. Preventing Aggressive Collection Measures

Financial hardship may stop CRA from:

• Freezing your bank account

• Garnishing wages

• Seizing assets
  Proper documentation is required.

Where Financial Hardship DOES NOT Matter

1. Notices of Objection

An objection reviews whether CRA applied tax law correctly—not whether you can afford to pay. CRA Appeals cannot cancel tax because of hardship.

2. Tax Court Appeals

Tax Court judges cannot cancel legally assessed tax based on personal hardship. They can only rule on correctness, evidence, and law.

3. GST/HST and Payroll Assessments

GST/HST and payroll taxes are “trust taxes”—collected from customers or employees. Hardship cannot eliminate these debts.

4. Director’s Liability

Hardship does not protect directors from liability if they failed to remit source deductions or GST/HST.

Common Mistakes Taxpayers Make

Believing CRA will forgive tax because they cannot afford it, filing objections instead of relief applications, complaining emotionally instead of providing documentation, missing deadlines due to stress, ignoring CRA letters, or assuming hardship gives legal defences. Hardship may influence collections—but not tax law decisions.

How to Prove Financial Hardship

Submit evidence such as:

• Medical records

• Employment termination letters

• Bank statements showing low balances

• Debt statements

• Eviction notices

• Proof of disability or reduced income

• Letters from doctors or mental health professionals
  Hardship claims without evidence almost always fail.

Best Strategy: Combine Dispute Channels

Often the strongest approach is:

1. File a Notice of Objection (to dispute the tax assessment)

2. Apply for Taxpayer Relief (to reduce penalties and interest)

3. Negotiate a payment plan (to stop collections)

4. Prepare full documentation of hardship
   This combined strategy protects your legal rights while addressing financial difficulty.

When Hardship Helps Most

Hardship is most effective when used for:

• Cancelling penalties

• Cancelling interest

• Reducing garnishments

• Adjusting payment plans

• Pausing collection enforcement
  CRA must exercise discretion fairly when genuine hardship exists.

When Hardship Helps Least

Hardship rarely helps when attempting to:

• Eliminate tax owing

• Reverse GST/HST obligations

• Cancel payroll source deductions

• Remove director’s liability

• Avoid audit reassessments
  These areas are governed strictly by law.

Mackisen Strategy

At Mackisen CPA Montreal, we help clients structure hardship-based requests strategically. We prepare strong Taxpayer Relief applications, negotiate payment plans that reflect financial realities, defend against aggressive CRA collection actions, and ensure that hardship is properly documented and presented. When CRA assessments are incorrect, we also file Notices of Objection or Tax Court appeals simultaneously.

Real Client Experience

A Montreal teacher recovering from surgery qualified for full interest relief. A self-employed contractor with severe income loss avoided wage garnishment through hardship documentation. A retiree with medical issues received reduced penalties and extended payment terms. A business owner was able to lift a bank freeze after we demonstrated genuine financial hardship.

Common Questions

Will CRA forgive taxes due to hardship? No—only penalties and interest. Does hardship stop CRA collection? Yes—when documented properly. Should I mention hardship in my objection? No—it does not influence tax correctness. How many years can hardship erase interest? Up to 10 years.

Why Mackisen

With more than 35 years of combined CPA experience, Mackisen CPA Montreal helps taxpayers use hardship strategically where CRA recognizes it—while simultaneously fighting incorrect assessments through the proper legal channels.