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.

8 comments:

  1. This has happened me twice now and both for proof of tuition and living expenses for each of my daughters (who then transfer a small amount to me). I have not heard back from the second one yet, hopefully it is all OK.

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    1. BCM, I have clients that get the request almost every year. I would not fret, with proper documentation, the CRA always assesses as filed.

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  2. Those are definitely some head-scratchers. They remind me of a story my father-in-law told me about working at the post office. He said that every day mail was delivered by truck to one spot, then a crew fork-lifted to a second spot, and another crew fork-lifted it to a third spot before the pallets were opened. All this happened even though the final spot was accessible by truck. The reason was that the sorting station had moved twice over the years, but it was easier to hire a crew of fork-lifters than it was to work through the bureaucracy to get the truck drivers authorized to change the drop-off spot. It's amazing how everyone can see the stupidity but noone has the power to do anything about it.

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    1. Michael, great story, but very disconcerting when u consider those are our tax dollars at work.

      I have several revenue side head scratchers, but waiting for a million dollar consulting contract from CRA for those :)

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  3. Mark great story. I'm a techie, quite comfortable with hardware and software....quick learner....but for the stuff you mentioned I have always paper filed...call me old-fashioned. As for the concerns you mentioned, a lot of things in a bureaucracy are done to create senseless work. They take on a mind of their own. I don't think the individuals are "evil" but the "system" is not efficient nor was it created to be (my two cents worth).

    In a few weeks, I begin my MAcc program and a neighbour came to me to assist with his paperwork for his self-employed construction business...no T2125 submitted yet (I will not be doing this, just organizing his stuff in Excel - ready for him to take somewhere to submit.

    Small question: for his tools expense (getting conflicting advice): <$200 or $500 - Expense it or >$200/$500 CCA. I do believe this is done on a per tool basis and not a cumulative purchase, that is, one could buy 10 tools with a total cost of $1500 but each one costs less than the thresholds mentioned.

    Thanks Mark for your input.

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    1. Hi Anon

      There are a couple ways to deduct tools.

      In response to your direct question, a tool (singular not plural) costing less than $500 should be put in Class 12 and depreciated at 100%.

      In addition, Tradespersons and apprentices may be able to claim an annual deduction of up to $500 (see this CRA link http://www.cra-arc.gc.ca/trades/)

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  4. I've had requests from CRA to supply proof of foreign taxes paid on US investments (ETFs) for which I had reported the income. Duh? As if it isn't automatic that the US government applies its 15% withholding tax.

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    1. CI- While I understand the "Duh factor" for you, your issue is actually a bit more complicated because of some exceptions.

      I agree that 95% of the time the WTH is the standard 15%, but the WTH on dividends could be only 5% where someone owns 10% or more of the company and in some cases people receive royalty income which they report as investment income which may have a different WTH rate. In addition the CRA often does not get a copy of the US tax form. Thus, I pesonally give them a pass on that one.

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