Educational letter campaign yields good results

Voluntary Disclosure Program provides relief from penalties

Did you ever wish the Canada Revenue Agency would send you a thank you letter? You know, something that reads like this: “We have reviewed your tax records for last year, and it looks like you did a great job. We appreciate your efforts, and we’re going to leave you alone this year.” Or maybe a card at Christmas saying something like, “At this time of year, the entire staff of the Canada Reve n u e A g e n c y want to thank you for paying our wages.” OK, I admit that would be a waste of taxpayer resources.

Unfortunately, over the next few days and weeks, 33,000 taxpayers in Canada will receive a letter that may send a shiver through them. It’s called the Annual Letter Campaign. If you are self- employed, receive rental income, or have claimed employment expenses, you are considered to be a potentially risky taxpayer. You also may be one of the 33,000 to receive a letter.

There are two different types of letters sent out. One is an educational letter. This letter is to educate you about what you can and cannot claim. The other letter is the intent- toaudit letter. This letter advises taxpayers that they may be chosen for an audit. You are asked to review your records, and if you find any errors, to adjust your tax return promptly.

So, what do you do if you receive one of these letters? Obviously, if you actually have made an error, whether it was intentional or not, you will want to make it right.

You have several different options to make corrections. If only a small correction is needed your best option is probably just to send in a letter with the details of the adjustment needed.

If you have made a substantial error or filed incorrect tax returns repeatedly, you may want to go through the Voluntary Disclosure Program. The VDP can provide relief from penalties.

Why does the Canada Revenue Agency use this letter campaign? Well, let’s face it – they have limited resources. I have been told that when they use these mass- mailers, they get a four to eight per cent response from taxpayers, depending on which letter they use.

So let’s assume they get a six per cent response. On 33,000 letters, that’s close to 2,000 tax returns voluntarily adjusted, just by sending out a letter! Not bad. I personally think that one of the reasons they choose to send out these letters in January of each year is because that’s precisely when many people are beginning to think about their taxes. If you recently received a letter that states you are at risk for audit, are you going to be more likely, or less likely, to be careful?

Yeah, exactly. And the government knows this.

This is the fourth year the Canada Revenue Agency has done this campaign. That means it’s been successful enough that they likely will keep on.

So if you haven’t received your letter yet, don’t be surprised if you receive one. Just don’t expect it to be a ‘ Thank You’ letter.

David Boese, DFA tax services specialist, is owner of Priority Taxation, which has been supplying accounting and taxation advice to the local community

since Sept 1989.