My name is Mark Goodfield. Welcome to The Blunt Bean Counter ™, a blog that shares my thoughts on income taxes, finance and the psychology of money. I am a Chartered Professional Accountant and a partner with a National Accounting Firm in Toronto. This blog is meant for everyone, but in particular for high net worth individuals and owners of private corporations. The views and opinions expressed in this blog are written solely in my personal capacity and cannot be attributed to the accounting firm with which I am affiliated. My posts are blunt, opinionated and even have a twist of humor/sarcasm. You've been warned.

Monday, August 27, 2012

Information Requests from the CRA that make you go Hmm

Every year after income tax season, I can count on several clients calling to inform me they have received an information request from the Canada Revenue Agency (“CRA”). One of the most common requests is a request for back-up information in regard to child care expense claims made for nanny's employed by my clients.

The CRA states the following in the information request: “to support your claim, please provide the following information: Either receipts, cancelled cheques or your Business Number (if you have issued a T4 slip to a caregiver)”.

Each time a client who has employed a nanny receives such a request, I shake my head. That is because where my client has hired and paid a nanny for childcare services, they are required by law to issue the nanny a T4 and when my clients file their income tax returns and make their childcare claims, they must provide the nanny’s name and SIN# on the childcare Form T778.

One would think that rather than wasting taxpayer’s time and CRA resources, the CRA would simply just punch the nanny's name and SIN# into their computers to cross-check that the nanny has reported the income provided on their T4 on their income tax return. This would seemingly confirm (a) the taxpayer actually paid the childcare costs and (b) the nanny has reported the income.

I have asked CRA agents numerous times why the CRA undertakes the above process and does not simply cross-check the child care claim instead of wasting my client’s time and the CRA’s resources. All I get is I agree with you, I don’t know why.

Maybe there is a more nefarious reason for the information request; however, no one has yet been able to provide such a reason or maybe they are not willing to do so.

Another information request my clients constantly receive is a request to provide the tuition receipt form T2202a for Canadian students and the T11A form for foreign students, typically, students attending University in the United States.

Where a client has e-filed, I understand the request for support of the tuition claim.

However, for those few clients who still prefer to paper file and the numerous Canadians that still paper file, this request is another head scratcher (especially since it has been a common request for years, even before e-filing became the norm). Why these information requests make you go hmm is that the CRA specifically states that you should only complete schedule 11 and not attach the T2202a form to your income tax return. You would think that if the CRA is going to consistently ask for the form, they would just make it a requirement to attach the form to save both taxpayer’s and the CRA’s time and resources.

 I could go on, but I will let any reader who wishes to pipe in to add to this list of things the CRA does that makes you go hmm.

Financial Blogger Michael James recently set forth his views on CRA Processing Reviews in this blog post.

The blogs posted on The Blunt Bean Counter provide information of a general nature. These posts should not be considered specific advice; as each reader's personal financial situation is unique and fact specific. Please contact a professional advisor prior to implementing or acting upon any of the information contained in one of the blogs.