This summer I am posting the "best of" The Blunt Bean Counter blog while
I
work on my golf game. Today, I am re-posting a May, 2011 post on dealing with the Canada Revenue Agency ("CRA") that is as relevant today as it was four years ago. I would not be surprised if many of you have not already received an information request as detailed below. I know I have already received 25 to 30 of these requests to date, in relation to my client's e-filed tax returns.
I discuss below, the six typical circumstances by which an individual may end up dealing with the CRA during the year.
The least worrisome of the six situations is where you initiate contact with the CRA to report a late income tax slip (such as a T3 or T5 slip), or you realize you missed a deduction or credit (such as a donation slip, medical expense or RRSP receipt). These situations are very straight forward and relatively painless. You or your accountant file a T1 adjustment request using form T1-ADJ E to report the additional income or claim the additional expense or credit. You would typically attach the receipt to the form and most of these requests are processed without further query from the CRA.
The second circumstance is where you receive an information request from the CRA. These requests often strike fear into my client's hearts, but are typically harmless. In this situation, the CRA usually sends a letter asking for back up relating to a deduction or credit claimed on the return. Generally these requests by the CRA are to provide support for items such as a donation tax credit, medical expense claim, a child care expense claim, a children's fitness tax credit claim or an interest expense claim. These requests are fairly common and more often than not, relate to personal income tax returns that are e-filed. You have 30 days to respond to these requests, however, time extensions are typically granted if you call the CRA and request such.
The third situation, and a step up on the anxiety meter, is the receipt of a Notice of Reassessment (“NOR”) from the CRA. A NOR may be issued for numerous reasons such as; not responding to an information request, the receipt by CRA of a T3/T4/T5 slip that was not reported in your return, or a reassessment based on an audit or review of your return as discussed below.
The fourth circumstance is typically not pleasant. Under this scenario, the CRA has selected you for an audit, either randomly or because you have come to their attention for some reason. An audit can take the form of a desk audit which is less intrusive or a full-blown field audit. Desk audits are typically undertaken to review a specific item that the CRA finds unusual in nature and you have 30 days to respond.
A full-blown audit could encompass a review of self-employment expenses, significant expense or deduction claims, or a full review of your personal or corporate income tax filings for a specific year or multiple years. In this situation, you will be sent a letter requesting certain information and you will be required to provide such to a CRA auditor. This process could take months, and if the CRA auditor is not satisfied by your documentation, or reasons for claiming certain expenses or deductions, they will issue a revised NOR.
Upon the receipt of the reassessment, you will have to determine, likely in conjunction with your accountant, whether the CRA’s assessment is justified. If you don’t feel it is justified, you need to consider if the amount of reassessed tax is significant enough to warrant the time and energy to fight the reassessment. If you decide to "fight" the reassessment, you and/or your accountant would file a Form T400A Notice of Objection. In this fifth situation, the Notice of Objection would state the facts of your situation and the reasons that you object to the CRA’s reassessment. The objection will then be reviewed (probably months later) by a CRA representative and you can make and support your case as to why the CRA has incorrectly assessed or reassessed you.
It is very important to make sure that you file a Notice of Objection on a timely basis. For an individual (other than a trust) the time limit for filing an objection is whichever of the following two dates is later: one year after the date of the returns filing deadline; or 90 days after the day the CRA mailed the reassessment. For corporations, the time limit is 90 days.
Finally, the sixth and final situation, and last resort, is to go to tax court because your Notice of Objection was not successful. There is an informal tax court procedure if your income tax owing is less than $12,000. Where the income tax owing exceeds $12,000, the process becomes formal and is costly and time consuming.
The above summarizes the various circumstances and situations under which you may deal with the CRA in any given year. Hopefully if you have any contact with the CRA it is only in connection to situation #1 or #2.
This site provides general information on various tax issues and other matters. The information is not intended to constitute professional advice and may not be appropriate for a specific individual or fact situation. It is written by the author solely in their personal capacity and cannot be attributed to the accounting firm with which they are affiliated. It is not intended to constitute professional advice, and neither the author nor the firm with which the author is associated shall accept any liability in respect of any reliance on the information contained herein. Readers should always consult with their professional advisors in respect of their particular situation.
Dealing With the Canada Revenue Agency
I discuss below, the six typical circumstances by which an individual may end up dealing with the CRA during the year.
The least worrisome of the six situations is where you initiate contact with the CRA to report a late income tax slip (such as a T3 or T5 slip), or you realize you missed a deduction or credit (such as a donation slip, medical expense or RRSP receipt). These situations are very straight forward and relatively painless. You or your accountant file a T1 adjustment request using form T1-ADJ E to report the additional income or claim the additional expense or credit. You would typically attach the receipt to the form and most of these requests are processed without further query from the CRA.
The second circumstance is where you receive an information request from the CRA. These requests often strike fear into my client's hearts, but are typically harmless. In this situation, the CRA usually sends a letter asking for back up relating to a deduction or credit claimed on the return. Generally these requests by the CRA are to provide support for items such as a donation tax credit, medical expense claim, a child care expense claim, a children's fitness tax credit claim or an interest expense claim. These requests are fairly common and more often than not, relate to personal income tax returns that are e-filed. You have 30 days to respond to these requests, however, time extensions are typically granted if you call the CRA and request such.
The third situation, and a step up on the anxiety meter, is the receipt of a Notice of Reassessment (“NOR”) from the CRA. A NOR may be issued for numerous reasons such as; not responding to an information request, the receipt by CRA of a T3/T4/T5 slip that was not reported in your return, or a reassessment based on an audit or review of your return as discussed below.
The fourth circumstance is typically not pleasant. Under this scenario, the CRA has selected you for an audit, either randomly or because you have come to their attention for some reason. An audit can take the form of a desk audit which is less intrusive or a full-blown field audit. Desk audits are typically undertaken to review a specific item that the CRA finds unusual in nature and you have 30 days to respond.
A full-blown audit could encompass a review of self-employment expenses, significant expense or deduction claims, or a full review of your personal or corporate income tax filings for a specific year or multiple years. In this situation, you will be sent a letter requesting certain information and you will be required to provide such to a CRA auditor. This process could take months, and if the CRA auditor is not satisfied by your documentation, or reasons for claiming certain expenses or deductions, they will issue a revised NOR.
Upon the receipt of the reassessment, you will have to determine, likely in conjunction with your accountant, whether the CRA’s assessment is justified. If you don’t feel it is justified, you need to consider if the amount of reassessed tax is significant enough to warrant the time and energy to fight the reassessment. If you decide to "fight" the reassessment, you and/or your accountant would file a Form T400A Notice of Objection. In this fifth situation, the Notice of Objection would state the facts of your situation and the reasons that you object to the CRA’s reassessment. The objection will then be reviewed (probably months later) by a CRA representative and you can make and support your case as to why the CRA has incorrectly assessed or reassessed you.
Finally, the sixth and final situation, and last resort, is to go to tax court because your Notice of Objection was not successful. There is an informal tax court procedure if your income tax owing is less than $12,000. Where the income tax owing exceeds $12,000, the process becomes formal and is costly and time consuming.
The above summarizes the various circumstances and situations under which you may deal with the CRA in any given year. Hopefully if you have any contact with the CRA it is only in connection to situation #1 or #2.
This site provides general information on various tax issues and other matters. The information is not intended to constitute professional advice and may not be appropriate for a specific individual or fact situation. It is written by the author solely in their personal capacity and cannot be attributed to the accounting firm with which they are affiliated. It is not intended to constitute professional advice, and neither the author nor the firm with which the author is associated shall accept any liability in respect of any reliance on the information contained herein. Readers should always consult with their professional advisors in respect of their particular situation.
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