What to do if your taxes are un­der CRA review

The Guardian (Charlottetown) - - BUSINESS - BY ARMINA LIGAYA

Many Cana­di­ans are watch­ing their mail­boxes and in­boxes for a per­sonal in­come tax re­fund, now that the fil­ing dead­line has passed. But in­stead of a wel­come in­flux of cash, re­ceive a dreaded no­tice that their file is un­der review or au­dit.

When the Canada Rev­enue Agency starts look­ing your way can be anx­i­ety-in­duc­ing, but it doesn’t need to be, tax ex­perts say.

The best thing to do is re­spond and co-op­er­ate, said Ja­son Sa­far, a part­ner in the tax ser­vices prac­tice of PwC.

“The worst thing you can do is play the os­trich, put your head in the sand and pre­tend that noth­ing is go­ing on,” he said.

The fed­eral gov­ern­ment in re­cent years has ramped up its efforts to crack down on tax eva­sion, par­tic­u­larly by big in­ter­na­tional com­pa­nies and wealthy in­di­vid­u­als us­ing off­shore tax havens. In the 2016 Fed­eral Bud­get, Ottawa ear­marked $444.4 mil­lion over five years to help the CRA track down tax cheats, with the aim of rak­ing in an ad­di­tional $2.6 bil­lion in tax over that pe­riod.

There has been an in­crease in au­dit ac­tiv­ity, in all facets, but less so for per­sonal in­come taxes, said Sa­far. And the vast ma­jor­ity of Cana­di­ans will never face a per­sonal tax au­dit, he added. How­ever, more Cana­di­ans will face the less se­ri­ous op­tion called a review.

“For the ‘lucky’ 0.1 per cent that does, it’s prob­a­bly that there is some­thing that is very un­usual about their fil­ings or his­tory of fil­ings that causes Canada Rev­enue Agency to want to take a closer look,” Sa­far said.

A review, how­ever, hap­pens fairly of­ten, said H&R Block se­nior tax pro­fes­sional Valo­rie El­gar.

A CRA review is sim­ply a re­quest for ad­di­tional in­for­ma­tion, rather than an au­dit which in­volves deeper scru­tiny of your tax file.

Your in­come tax file may be se­lected for review ran­domly, or for rea­sons such a dis­crep­ancy be­tween the fig­ures you cited and those of a third-party, such as your em­ployer. An un­usual change in your ac­tiv­i­ties, such as an in­crease in med­i­cal ex­penses or child care costs, may also trig­ger a closer look from the tax col­lec­tor.

Of­ten, once the tax­payer sub­mits the re­quired in­for­ma­tion to clear up con­fu­sion, that’s the end of the process, said El­gar.

“Send in the doc­u­men­ta­tion that they re­quest, and then that’s usu­ally it,” she said. “But some peo­ple do get wor­ried.”

If you do not co-op­er­ate, the CRA will likely make ad­just­ments based on the in­for­ma­tion they have. This could lead to un­wanted out­comes, such as a large tax bill plus in­ter­est charges, she said.

There are sev­eral types of review, such as a pre-as­sess­ment review pro­gram that takes place be­fore a no­tice of as­sess­ment is is­sued. A pro­cess­ing review hap­pens af­ter the no­tice of as­sess­ment is is­sued, usu­ally be­tween Au­gust and De­cem­ber.

Your in­for­ma­tion could also be re­viewed in a match­ing pro­gram af­ter the tax as­sess­ment is is­sued that com­pares the in­for­ma­tion in your tax re­turn to a third party, such as a fi­nan­cial in­sti­tu­tion.

Just in case you ever find your­self in the CRA’s crosshairs, it’s im­por­tant to pre­empt any headaches by keep­ing all relevant re­ceipts used to file your tax re­turn on hand for at least six years, said El­gar.

Some doc­u­ments may need to be kept on file even longer, said Sa­far. For ex­am­ple, doc­u­ments in con­nec­tion with a prop­erty owned by the tax­payer will need to be kept until the prop­erty is sold, in or­der to quan­tify the cap­i­tal gains.

If you do find your­self un­der au­dit or review by the CRA, it is im­por­tant to read the let­ter care­fully and make sure to un­der­stand what they are ask­ing for, he added.

Af­ter sub­mit­ting the re­quested in­for­ma­tion, the CRA will com­monly send the tax­payer a let­ter out­lin­ing their con­cerns and re­assess­ment de­tails, and the re­cip­i­ent has 30 days to re­spond be­fore the new tax as­sess­ment is pro­cessed, said Sa­far.

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