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, February 18, 2013

Less is More When it Comes to the CRA


I am often asked by my readers in the comments section of my blog, if they should send in documents such as appraisals, invoices and interest expense statements to the Canada Revenue Agency ("CRA") to support a tax deduction, tax credit or cost base adjustment. They also ask should they write to the CRA and explain their situation. The answer in almost all situations is a resounding NO. I address this below.

As readers of my blog are aware, I answer almost all the questions I am asked. I attempt to answer the less complicated questions (although they are often couched in case I was not with provided all the facts) and I provide guidance in response to other questions. Unfortunately, I am not able to provide answers in the areas of corporate or personal income tax planning, because of (a) time constraints (b) without knowing all the facts and circumstances; I cannot attempt to properly answer a question with these limitations.

I however, do greatly appreciate my reader's comments, as they provide tangible evidence I have engaged them. A bonus for me is that the questions actually provide me with ideas and topics for future blog posts. The comments provide feedback on which posts have wide appeal or are at least controversial topics. For example: my post on Is Your Corporation a Personal Service Business? has 76 comments, my post on The Income Tax Implications of Purchasing a Rental Property has 65 comments and my post on CRA Audit – Will I Be Selected? has 50 comments. For certain other posts, like Is it Morbid or Realistic to Plan for an Inheritance, I just enjoy reading the comments I receive.

Anyways, back to the matter at hand. With E-filing, there are few hard documents the CRA requires to be filed initially. That is not to say the CRA will not follow up with an information request for copies of actual receipts to evidence expenses claimed such as child care and credits such as donations. For those that still paper file (starting in 2012, all accounting firms must now EFILE all returns), the receipts you submit essentially include any T-slips, RRSP contribution receipts, medical receipts and donations.

That is all you should provide the CRA. If you have back up support for stock transactions, real estate transactions, interest expense or what have you, you should not provide these documents to the CRA unless you are requested to do so. In many cases, even if the item is contentious, the reality is that it will not necessarily be selected for an audit follow up. So why ever volunteer such information?

In addition, people for some inexplicable reason have an urgent need to explain their actions to the CRA. I have had several cases where a new client who has engaged me to assist in a tax matter proudly shows me the 3 page letter full of reasons and excuses they sent to the CRA.

I would suggest that in most cases, these letters are browsed through by the CRA. Where your letter is read in detail, I would submit the CRA representative is only looking for facts contained therein and they have little or no interest in your story and excuses (save your story for an actual auditor assigned to your case or a fairness application) unless you are providing them their dose of daily entertainment. What in fact you have done in many cases is provide the CRA an audit trail for an item probably not even on their radar.

My advice is simple. Do not ever provide anything voluntarily, be it a document or a mea culpa letter. If you have an issue or need to correct something, engage an accountant, who will know how to finesse the item without providing more than is required. Remember, less is always more with the CRA.

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.

6 comments:

  1. Great blog.

    First thing tomorrow morning we go live with our weekly blog titled: Tax problems with the CRA?

    It is about that you may not necessarily require a lawyer, especially one who bombards the airwaves with advertising, just because there is a problem with CRA.

    Nothing like a one-two punch??

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    1. Thx Ira:

      Like your topic, I did a similar blog post last year sometime. The lawyers have done a great job marketing privileged that is pretty much irrelevant in most cases, got to give them credit.

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  2. Thanks, once again, for your blog. The topics are always interesting and your comments and explanations clear.

    Note to self: rip up tear-stained letter to CRA about the death-by-water bottle explanation for why all my travel expense data contained on my iPhone was lost. New Age version of "the dog ate my homework".

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    1. Hey Pursuit:

      Thanks for being a long term reader. Honestly, some of the letters I have seen, I just shake my head and can only imagine what the CRA rep is doing when reading the letter.

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  3. Shakespeare already covered this advice: "the lady doth protest too much, me thinks"

    What I found funny was my daycare costs were selected for audit, as I claimed the full $7000 a year maximum. I just would have loved to see the guy's face when he got my receipts for $17,000 in the mail. I almost included a note saying that setting daycare costs based on a national average when Toronto and Vancouver and major cities have a daycare supply problem (thereby increasing prices) is ridiculous, but figured it's not that person's fault.

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    1. Anon, your comment made me laugh. Also, where day care costs are nanny related and they r issued a T4, why even bother auditing, which happens a lot.

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