Time-dependent density functional theory (TD-DFT) at the generalized gradient level of approximation (GGA) has shown systematic errors in the calculated excitation energies. This is especially the case for energies representing electron transitions between two separated regions of space or between orbitals of different spatial extents. It will be shown that these limitations can be attributed to the electronic ground state Hessian G(GGA). Specifically, we shall demonstrate that the Hessian G(GGA) can be used to describe changes in energy due to small perturbations of the electron density (Deltarho), but it should not be applied to one-electron excitations involving the density rearrangement (Deltarho) of a full electron charge. This is in contrast to Hartree-Fock theory where G(HF) has a trust region that is accurate for both small perturbations and one-electron excitations. The large trust radius of G(HF) can be traced back to the complete cancellation of Coulomb and exchange terms in Hartree-Fock (HF) theory representing self-interaction (complete self-interaction cancellation, CSIC). On the other hand, it is shown that the small trust radius for G(GGA) can be attributed to the fact that CSIC is assumed for GGA in the derivation of G(GGA) although GGA (and many other approximate DFT schemes) exhibits incomplete self-interaction cancellation (ISIC). It is further shown that one can derive a new matrix G(R-DFT) with the same trust region as G(HF) by taking terms due to ISIC properly into account. Further, with TD-DFT based on G(R-DFT), energies for state-to-state transitions represented by a one-electron excitation (psi(i)-->psi(a)) are approximately calculated as DeltaE(ai). Here DeltaE(ai) is the energy difference between the ground state Kohn-Sham Slater determinant and the energy of a Kohn-Sham Slater determinant where psi(i) has been replaced by psi(a). We make use of the new Hessian in two numerical applications involving charge-transfer excitations. It is concluded that higher than second order response theory (involving ISIC terms) must be used in approximate TD-DFT, in order to describe charge-transfer excitations.