Post Tax Season Assessment and Filing Issues

This year I have had multiple client queries in respect to their Notice of Assessments (“NOAs”) which reflect tax balances owing, despite the fact the taxes were paid in April. Today I discuss this matter and a couple other issues, that have arisen after April 30th.

Notice of Assessments

Typically, taxpayers file their personal tax returns, pay their tax owing (or wait for their refund), start golfing and gardening and probably don’t give much more attention to their taxes until they receive their NOA. Upon receipt, they may take a quick glance to ensure no tax is owing, maybe make note of their RRSP contribution limit and then throw the NOA into a file.

This year, many taxpayers have done a double-take when reviewing their NOA, since their assessments are reflecting tax still owing. I have had a several clients call me in a panic asking if their return was incorrectly filed since the CRA has assessed them more tax? I quickly put their minds at ease. I tell them that what has happened is the CRA is moving to “express” NOAs and has issued the notice so quickly that their system has not yet had time to match the tax payment (this applies more specifically to people who pay their balance owing at the same time or within days of  filing their return). I would bet that many of you who owed tax this year had the same issue with your NOAs.

While the NOA expediency is impressive, they are actually being issued too fast (imagine that, complaining the CRA is too fast :) and are leading to some confusion. Perhaps the CRA should consider waiting a little longer to issue NOAs, so that for those people who pay their tax owing right away, the payment can be reflected, such that the NOA will not reflect a balance outstanding, where there is in fact, no tax due.

The assessment wording has also caused some confusion for those taxpayers who have filed T1135 Foreign Income Reporting Forms. The NOA states that if you indicated you owned foreign property, you have to fill out Form T1135 and send it to them if not already done so. Several of my clients have called to ask if we forgot to send in their T1135, when in fact, the NOA is just reminding people that if they said yes, they had to file the T1135.

Alimony

I have also had a couple clients who pay alimony receive NOAs that have reduced their alimony claim. The NOA says the agreement the CRA has on hand shows they are not entitled to the alimony deduction claimed. It is a little unclear at this time whether this is just an issue where agreements have been amended to change alimony and the CRA has not been provided the new agreements, or the CRA is factoring in non-deductible child support to reduce the alimony claim. In any event, I think both the CRA and taxpayers would be best served if where an alimony claim is made that differs from the CRA records, the CRA does not issue a NOA, but sends an information request asking the taxpayer to explain the variance and support the claim. This would save a lot of time and frustration on both the taxpayer and CRA side and reduce a number of T1 Adjustment Requests and Notice of Objections.

Information Requests

Finally, just a reminder: if you receive an information request to provide the CRA back-up for any expense or claim you made on your return, you typically have 30 days to respond. Either do so within the 30 day time period, or request an extension far in advance. Do not ignore the information request or your return will be assessed without the deduction or expense.

Hopefully you had a refund in 2017 and have not had to deal with any of the above concerns.

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. Please note the blog post is time sensitive and subject to changes in legislation or law.

The Best of The Blunt Bean Counter - Dealing With the Canada Revenue Agency

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.

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.

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 Canada Revenue Agency (“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 efiled. 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.

Next week I will discuss two other ways you may deal with CRA, but these are the relief provisions and not assessment or audit related.

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.

Confessions of a Tax Accountant - Week Two- T1 Adjustments for Statute Barred Years

As of today, I have received less then 10% (21 returns) of the client income tax returns I will prepare.The returns submitted thus far are typically my less complex returns and have only a few slips such as T4’s, T5’s, RRSPs and maybe some stock trading or a rental property or two. These returns can be filed without waiting for additional slips. As the majority of my returns require T3's and T5013's, I will not be seeing most of my returns for at least a couple weeks.

I do not have much to report income tax issue wise this week, but I did receive a notice of re-assessment for a client that brings up an interesting filing issue if you have missed claiming income tax deductions or credits in prior years.

T1 Adjustments For Statute Barred Years

In years gone by, if a client wanted to adjust their personal income tax return for a missed deduction or credit for multiple years, or more then three years after they had been initially assessed, the Canada Revenue Agency (“CRA”) would typically deny such a request, since the tax returns were statute barred. Such adjustment requests were often made for disability credits not claimed, medical and donation receipts not claimed and interest expense not deducted amongst various other reasons.

However, as a result of the “Fairness” legislation, the CRA is now allowing most requests that cover multiple years. The following is what is typically printed by the CRA on the re-assessment notice for one of these adjustment requests.

“As you requested, we have adjusted your return. In the past, you had to make such a request within three years of the date we mailed you the “Notice of Assessment” for that return. However, the taxpayer relief provisions of the “Income Tax Act” allow us to make adjustments beyond the usual three year period. Since we allowed you an adjustment under these provisions, you cannot file a notice of objection regarding this reassessment.”

Since in almost all cases you are asking for a refund from CRA, the fact you cannot file a notice of objection is typically a moot point and a small concession especially in comparison to the fact the CRA will probably accept your multi-year adjustment request.

If you or anyone you know has missed claiming a deduction or claiming a credit on a return assessed over three years ago, you should consider preparing a T1 Adjustment Request, since in most cases it will now be accepted.

[Bloggers Note: In my Confessions of a Tax Accountant blogs, I will discuss real income tax issues that arise, but embellish or slightly change facts to protect the innocent, as the saying goes.]

NHL- Just Act With Some Common Sense

The hit by Zdeno Chara on Tuesday night against Max Pacioretty was a vicious hit. In my opinion, in real time, it appeared to be what is commonly known as a “hockey play”. However, whether it was or was not a hockey play is irrelevant and the result was horrific.

Since the players obviously will not police themselves or respect their own, the NHL should take two simple steps to clean up the head-shot and icing mess. If I was in charge of the NHL, I would implement two simple rules:

1. Automatic icing. There are 3 plays out of a 100 where an offensive player actually wins the puck, so why risk the head and "lower & upper body" injuries that often occur on chases to the puck on icing plays.
2. Automatic suspensions on any hit to the head or any hit that causes an injury to the head, whether it appears intentional or not. Ten games the first time (with leeway to increase it if circumstances dictate such), twenty five the second offence (with upward adjustment leeway) and a years suspension the third time a player goes for the head of an opposition player.

There, nice and simple, no discretion other then to increase suspensions. What’s so hard?

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.