Jun
30
By Fin MacDonald, Fin Tax Service
Fin MacDonald has over 20 years’ experience providing retirement and Income tax planning advice. Readers are however cautioned that responsibility falls on the taxpayer to ensure that all information is adequate and correct.
This month I’m going to look at the review process that Canada Revenue Agency (CRA) puts your tax return through, what you can do if you disagree with their decisions, and in a related way, the importance of record keeping.
But first a reminder on the scam front. The CRA will never phone and demand that you go and buy prepaid gift cards and tell them the Personal Identification Numbers (PIN) on them. They will never demand that you wire them or email them money. They will never threaten you with imprisonment if you do not pay them immediately.
With the 30 percent reduction in staff at the CRA, and the over 80 percent of individual tax returns that are now electronically filed, summer time is when you may receive a letter from the CRA. Before the staff reductions, claims for things like moving expenses, major medical claims, business or rental losses causing refunds, would be examined before a Notice of Assessment (NOA) and the refund were issued. Now it is rare to have the CRA ask for information before sending out the NOA.
The most important thing to do if you receive a letter from the CRA is not to ignore it. Secondly, respond to the address in the letter: it may not be in BC; often it will be in Atlantic Canada. If the letter is seeking information it will specify a time limit to respond to it. If you are unable to respond in the time the letter specifies, call the telephone number included and ask for an extension. Thirty day extensions will routinely be granted, but only if you ask. A request for more information gives you the opportunity to present the information the CRA is looking for, and to add to it if appropriate. The letter will ask if you want the documents returned to you; in all cases, ask to have them returned.
Let’s take medical expenses as an example. Many expenses are eligible for a medical expenses claim, from private medical or dental or travel medical insurance, to actual medical expenses. In British Columbia, allied expenses such as chiropractic, naturopathic, massage therapy, psychotherapy, social work counselling, foot care and vision care of all sorts are also eligible. Medical expenses are eligible if the person providing the service is a member of a provincially regulated college. So, when you receive the CRA’s request for your medical expenses, you may realize that you have more than you initially thought. If so, include them in your response.
After the CRA receives your response to their letter it may take six to eight weeks for them to respond. They may confirm your information; they may issue a Notice of Reassessment (NOR); or, they may ask for further information. Sending further information, if requested, within the time outlined, is important. If the CRA confirmed your information, file it away (more about record keeping below). If you do not agree with the NOR you can ask the tax centre that issued it to reconsider. This will give you a chance to talk to the CRA; there may be a misunderstanding that can be cleared up.
If, after talking to the CRA, you still are dissatisfied with the result you may file a Notice of Objection. This may be done on form T400A or by a letter to your local Chief of Appeals. In the form/letter you set out why you disagree with the CRA’s decision, include documents that support your argument, and ask the CRA to change their ruling. There are time limits on when you can file your objection: either one year after the filing deadline for the tax year in question or 90 days after the NOR is issued. For example, if the CRA issues an NOR on July 12, 2016 for the 2015 tax return, you have until April 30, 2017 to file your objection.
After receiving your objection, the CRA will assign it to one of their officers. She may ask you for more information, may accept your objection, or may deny it. If you are still not happy with the CRA’s decision, the next step is the Tax Court of Canada (TCC). This is a long and usually unproductive course of action for an individual to take. During the time a case makes its way through the TCC you are not required to make the payment that the NOR asked for but interest is compounding, and by the time a decision is reached – sometimes years later – the amount owing can multiply. If you are still determined, after losing in TCC, appeals to the Federal Court of Appeal and Supreme Court of Canada may be possible.
Record Keeping
Your tax records and supporting documents must be kept for a minimum of six years. If you are self-employed, have rental income or have eligible employment expenses, having the CRA review your affairs will happen on a regular basis; records should be retained indefinitely. In normal cases – those where the CRA does not allege wilful mis-statements or fraud – the CRA may only go back three tax years to issue an NOR. If the CRA does allege the mis-statements are fraud, there is no limit how many years back they may go to issue an NOR. However, to go further back than three tax years the CRA must be able to satisfy a TCC judge of your unlawful behaviour. If your tax affairs are going to be involved in a review on a regular basis, the importance of good record keeping cannot be overstated. Having your records well organized and backed up on a regular basis is one of the keys to a smoother relationship with the CRA.
Next time I’ll be looking at tax planning. As always dear readers, I appreciate the opportunity to use my lens of Helping You to Keep More of Your Money to examine the tax issues that affect you.